TaxTMI 
TaxTMI 
2022 (1) TMI 380
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....UTT YADAV. J I PREAMBLE 1. The petitioners are stated to be manufacturers of Tobacco and Tobacco products and are registered in terms of Rule 9 of the Central Excise Registration Rules, 2002 ("the Rules, 2002" for short). Subsequent to coming into force of the Goods and Services Tax ("GST" for short) regime, the petitioners have registered themselves under Rule 10 (1) of the Central Goods and Services Tax Rules, 2017 ("CGST Rules" for short). 2. The petitioners in W.P.No.52374/2019, 52323/2019, 51473/2019, 6114/2020, 6122/2020, 2318/2020, 651/2020 and 713/2020 have sought for the following reliefs: a) Setting aside of the Notification No.3/2019 dated 06.07.2019 issued by the first respondent-Union of India whereby Central Excise Duty has been levied on tobacco and tobacco products. b) Declaration that the Repeal and Saving provision as contained in Section 174 of the Central Goods and Services Act, 2017 ("CGST Act" for short) insofar as it seeks to save the operation of the Central Excise Act, 1994 qua tobacco and tobacco products as unconstitutional and bad in law. c) Declaration that Section 136 of the Finance Act, 2001 under which there is lev....
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....venth Schedule; (b) goods with respect to which levy of GST has been deferred viz., petroleum crude, high speed diesel, motor spirit (commonly known as petrol, natural gas and aviation turbine fuel). In the interregnum, old regime of indirect taxes qua such products continues. iv) Article 246A contains a non-obstante clause while conferring power on the Parliament and legislature of the State to make laws with respect to goods and services. As Article 246A is carved out of Article 246, there is a denudation of power under Article 246. Article 246A being a sui generis power exhaustive of taxes on all aspect and facets of supply of goods including tobacco and tobacco products, overrides the taxing power of legislature referable to Article 246 in light of the non-obstante clause in Article 246. v) Article 248 which provided for residuary power of legislation including the power to impose a tax not mentioned in the concurrent or State List stands curtailed, as the same has been amended by 101st Constitutional Amendment whereby Article 248 has been amended and begins with the phrase "subject to Article 246-A, ........." vi) The levy of basic excise du....
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....ntia"; (ii) The intelligible differentia must have a rational nexus with the object sought to be achieved by the legal provision. All goods were subject to excise duty in the erstwhile indirect tax regime (i.e., pre-GST regime) and were subjected to tax on two taxable events i.e., manufacture and sale and after coming into force of the GST regime, tobacco products are subjected to indirect taxes under the pre-GST regime (i.e., under the Excise Act) and GST regime as well. The singling out of tobacco products for such taxation vis-à-vis other goods which are subjected to tax only under GST regime does not have any legal justification for such hostile and discriminatory treatment. b) Manifest Arbitrariness: The levy of excise duty and levy of NCCD has elements of caprice, irrationality and lacks adequately determining principles rendering the levy bad as being manifestly arbitrary. xiv) The phrase "adequately determining principle" has been held to be "principle which is in consonance with the constitutional values". In the present case, the levy of excise duty by recourse Notification No.3/2019 dated 06.07.2019 to sustain excise du....
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.... 6. The contention of the respondents are as follows: i) Except for alcoholic liquor for human consumption, petroleum and petroleum products, stamp duty, tobacco and tobacco products and opium, all other goods are liable only to Goods and Services Tax under Article 246A of the Constitution. ii) Tobacco and tobacco products are subject to the following taxes/levies: a) GST under Article 246A b) Compensation Cess under Article 270 c) Surcharge in the nature of NCCD under Article 271 d) Excise duty under Entry 84 List I r/w Article 246 Reliance is placed on the observations of the Apex Court in Union of India and Others v. VKC Footsteps (decision dated 13.09.2021 in Civil Appeal No.4810/2021) wherein it is observed that with the enactment of the 101st Constitutional Amendment, Entry 84 of the Union List has been restructured to incorporate duties of excise on Tobacco and tobacco products. iii) The Courts while interpreting the GST regime has to keep in mind that the Parliament had to make balances to accommodate the interest of the States and that the area of GST Law is such that judicial interpretation cannot be ahead of policy making....
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....st I read with Article 246 is independent and can co-exist without influencing or being impacted by the levy of GST on the very same goods namely tobacco products under Article 246A. xii) Article 246A contains source of power and field of legislation and provides for simultaneous power of taxation insofar as GST is concerned, but Article 246 read with Entry 84 of List I confers sole power on the Union. xiii) As per the Aspect Doctrine, the same transaction may involve two or more taxable events in different aspects and accordingly, there is no illegality in the levy of GST as well as excise duty on the same product. xiv) Selecting Objects to the Tax, determining the quantum of tax, legislating the conditions for the levy and the socio-economic goals which a tax must achieve are the matters of legislative policy. xv) The statement of objects and reasons cannot be read in isolation. xvi) The taxable event for levy of GST under Article 246A is supply while the taxable event for levy of excise duty under Article 246 r/w Entry 84 List I is manufacture. xvii) The exemption of excise duty as per the Notification does not have the effect of granting exemption of NCCD unle....
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....de subject to the other provisions of the Constitution. The expression "subject to" conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. Further Article 278 opens out with a non obstante clause. The phrase "notwithstanding anything in the Constitution" is equivalent to saying that spite of the other articles of the Constitution, or that the other articles shall not be an impediment to the operation of Article 278......" On the same lines is the decision of the Apex Court in Chandravarkar Seetharathna Rao v. Ashalatha S. Guram reported in (1986) 4 SCC 447 which reiterates the above position while explaining that the effect of "notwithstanding" clause would merely amount to declaring that inspite of the provision mentioned in the non-obstante clause the provision would have its full operation. Para 67 of the judgment reads as follows: 67. A clause beginning with the expression "notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract" is more often than not appended to a section in the b....
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....6 which is not otherwise prohibited. It is to be noted that the Constitution (One Hundred and First Amendment) Act, 2016 introduced Article 246A which identifies the field of taxation as well as source of power. No doubt, GST is levied on products by virtue of the introduction of the Central Goods and Services Tax Act, 2017 pursuant to the amendment made to Article 246A of the Constitution. But as discussed, despite Article 246A containing a non-obstante clause, the power under Article 246 stands protected. No doubt, it has been contended that there is a clear distinction between source of power and field of legislation and the entries in the lists being fields of legislation cannot be construed as a source of power. It must be noted that Article 246 continues to be the source of power even post-introduction of Article 246A. The amendment to Entry 84 List I whereby field of legislation indicating levy of duty of excise on goods manufactured or produced relating to tobacco and tobacco products does indicate the conscious intention to preserve the exercise of power under Article 246 even after introduction of Article 246A. If the argument of the petitioners that post-introdu....
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....9 of the CGST Act/UPGST Act empowers to levy tax on supply of petroleum crude, high speed diesel oil, motor spirit, natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. Thus, GST may be levied even on such goods which are excisable goods under the Central Excise Act, 1944. Therefore, Superior Kerosene Oil (SKO) shall continue to be an excisable goods under the Central Excise Act, 1944 even if GST on supply of Kerosene Oil (PDS) is levied under the GST laws. 22. Undisputedly, Superior Kerosene Oil is mentioned in the Fourth Schedule although no rate of duty has been provided. If rate of duty has not been provided it shall merely mean that no duty is leviable in the absence of rate of duty. It does not mean that such goods are not excisable. All the goods mentioned in Fourth Schedule to the Act, 1944 shall continue to be excisable goods unless the goods is removed from the schedule by an amendment. Section 174 of the CGST Act has not repealed the Central Excise Act, 1944 as respect to the goods included in entry 84 of the Union List of the Seventh Schedule to the Constitut....
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....harges and cesses into one tax but the constitutional provision does not indicate that henceforth no surcharge or cess shall be levied." Accordingly, the legal argument based on intendment of avoiding of cascading taxes will not have the effect of prohibiting levy of tax which otherwise is permissible as the power under Article 246 remains protected and preserved. It must also be noted that the Legislature enjoys a wide latitude to decide on the methodology of revenue generation and the courts should not rush and must tread carefully while dealing with legislation based on Fiscal Policy. In the process of achieving ultimate goal as envisaged while introducing the GST the continuance of levies under the previous legislations unless barred ought to be permitted as being competent visà-vis available source of power which cannot be defeated by resort to argument based on objects of GST as contained in the Objects Clause. (ii) Taxing of Taxable event: Even though the petitioner would contend that what is being taxed is the aspect of manufacture under the Central Excise Act and the same taxable event of manufacture as subsumed in GST, even if such contention were to be....
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....itioner and the respondent. The respondent relying on the Aspect Theory has contended that the aspect of supply as defined in the GST Act (Article 246A and the GST Act) would be distinct from the aspect of manufacture which is sought to be taxed by virtue of levy of excise (Article 246 Entry 84 List I) and accordingly, looked at from the subjective point of view of the legislature a single subject from different aspects could be a subject matter of different taxes. The petitioners have specifically contended that the Aspect Theory would not be applicable as it would be applicable only where there is a dispute relating to field of distribution of legislative powers between Federal and Provincial Governments. In fact, in the case of Federation of Hotel and Restaurant v. Union of India reported in (1988) 3 SCC 634 the question that was considered was whether expenditure tax was in "pith and substance" actually a tax on luxuries which was squarely covered by Entry 62 List II or it could be construed as a tax on consideration paid on purchase of goods which would fall under Entry 54 of List II and accordingly, the question of legislative competence of the Parliament was in ques....
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....e time being, only expenditure which results in such luxuries, should not be allowed to draw a curtain over the basic difference between the two categories of imposts. For instance, if the conflict alleged had been between the present State Acts and an Act of Parliament taxing expenditure incurred in the construction of theatres or the maintenance of race horse establishments or the like, there would have been no overlapping at all and the pith and substance of the central tax could well be described as "expenditure" and not "luxuries". This distinction is not obliterated merely because of the circumstance that both legislatures have chosen to attack the same area of vulnerability, one with a view to keep a check on "luxuries" and the other with a view to curb undesirable "expenditure". Clearly, in the present case the question as to legislative competence of the Union vis-à-vis the State is not in question. The question as to whether power under Article 246A which is tax on goods and services if levied on a product could also be a subject of levy of an indirect tax on the same product in exercise of power under Article 246. While the power under Article 246A provid....
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..... The surcharge would merely refer to an increase of the duty which in the present case is by way of a duty of excise. The nature of alteration of duty by way of the Finance Act has been considered in the case of The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai reported in (1975) 2 SCC 454 (Bench of Three Judges). The Apex Court has clearly opined that the surcharge leviable under Section 2 (1) of the Finance Act, 1963 are relatable to Article 271 of the Constitution of India. In a detailed discussion, the Apex Court has also clarified that the purpose and concept of the additional surcharge is different from the Income Tax and that "26.... Thus, additional surcharge is a distinct charge not dependent for its leviability on the assessees liability to pay income tax or super tax." The Apex Court has also observed that the Income Tax Act and Annual Finance Acts are enacted by the Parliament in exercise of the power conferred by Article 246 (1). As to the nature of power exercised under the Finance Act, it is observed as follows: "12....... Once the Parliament has the legislative competence to enact a law with respect to a ....
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....as nothing to do with the validity of leviability of the duty of excise. As noted supra, in the case of The Madurai District Central Co-operative Bank Ltd. v. The Third Income Tax Officer, Madurai reported in (1975) 2 SCC 454 the Apex Court has clarified the legal position and upheld the validity of imposition of surcharge by way of provision in the Finance Act and accordingly, levy of surcharge by way of provision under the Finance Act of 2001 is not open to be questioned. Article 271 is also clear and provides for increase in duty or taxes by a surcharge. The only bar under Article 271 is that the surcharge contemplated excludes the surcharge as regards the Goods and Services Tax under Article 246A. In the present case, the surcharge is by way of duty of excise and accordingly, cannot be construed to be a surcharge as regards Goods and Services Tax as contemplated under Article 246A. The interpretation of the petitioners that surcharge cannot be levied under Article 271 as regards those goods and services which are included under Article 246A is liable to be rejected as no such restriction could be placed on a plain reading of Article 271 which provides that surcharge co....
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....d of NCCD during such period is liable to be rejected. It must further be noted that even though NCCD is in the nature of duty of Excise and may be construed to be an additional duty, yet it is an independent levy and exemption granted on Excise Duty cannot prohibit imposition of other additional duties or levy and accordingly there is no bar for operation of NCCD. F. Levy of basic excise duty and NCCD is violative of Article 14 of the Constitution of India : At the outset, it needs to be noted that the petitioner has not raised any contentions in the pleading regarding the attack of the levy of basic duty and NCCD on the ground of it being violative of Article 14 of the Constitution of India. It is only in the written submission that such contention has been raised. The case that is made out is that tobacco and tobacco products are the only category of goods which are subject to indirect taxes under two regimes viz., GST Regime and Excise Regime. Grounds of challenge are: a) Unreasonable Classification b) Manifest arbitrariness It must be noted that the respondent has countered such contention on the ground that twin test of reasonableness and rati....
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....ies involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. The differentia of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels with higher economic status reflected in one of the indicia of such economic superiority. The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of economic superiority of hotels to which the Act is applied is erroneous or irrelevant." 9. The reliance of the petitioner on the authorities mentioned in Para 59 of the written submissions does not in any way help the petitioner insofar as the judgments lay down broad principles relating to classification. In fact, the same authorities are also often cited to contend that legislature has wide discretion in classifying items for tax purposes and that the differentia has some reasonable relation to the object of the legislation. 10. It m....