Bombay High Court
M/S. Ghodawat Energy Pvt. Ltd vs The State Of Maharashtra And Ors on 4 October, 2016
Bench: S.C. Dharmadhikari
WP8572.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 8572 OF 2015
M/s. Ghodawat Energy Pvt. Ltd., a registered ]
company having its office at B-Gate No.351 ]
to 359, Majale, Taluka - Hatkanangle, ]
District Kolhapur ] ... Petitioner
Versus
1. The State of Maharashtra, Through ]
the Government Pleader, High Court, ]
Mumbai. ]
2. The Commissioner of Sales Tax, having
his office at 3B-7, 3rd Floor, Old Vikrikar
]
]
Bhavan, Mazgaon, Mumbai- 400 010. ]
3. The Deputy Commissioner of Sales Tax, ]
having his Office at Vikrikar Bhavan, ]
Kolhapur ]
4. The Joint Commissioner of Sales Tax ]
(Appeals), Kolhapur, Maharashtra State, ]
Vikrikar Bhavan, Kolhapur ]
5. The Maharashtra Sales Tax Tribunal, ]
Vikrikar Bhavan, Mazgaon, Mumbai-10 ] ... Respondents
WITH
WRIT PETITION NO. 9265 OF 2015
M/s. Ghodawat Energy Pvt. Ltd., a registered ]
company having its office at B-Gate No.351 ]
to 359, Majale, Taluka - Hatkanangle, ]
District Kolhapur ] ... Petitioner
Versus
SRP 1/78
::: Uploaded on - 06/10/2016 ::: Downloaded on - 07/10/2016 00:44:47 :::
WP8572.doc
1. The State of Maharashtra, Through ]
the Government Pleader, High Court, ]
Mumbai. ]
2. The Commissioner of Sales Tax, having ]
his office at 3B-7, 3rd Floor, Old Vikrikar ]
Bhavan, Mazgaon, Mumbai- 400 010. ]
3. The Deputy Commissioner of Sales Tax, ]
(KOL-VAT-E-002), Vikrikar Bhavan, ]
Kolhapur, Maharashtra ] ... Respondents
Mr. V. Sridharan, senior counsel with Mr. C.B. Thakar, Mr.
Rahul Thakkar, Mr. Girish Kala and Mr. Puneeth Ganapathy
for the Petitioner in both the Writ Petitions.
Mrs. Naira Jeejeebhoy, special counsel for the Respondents in
both the Writ Petitions.
CORAM : S.C. DHARMADHIKARI &
DR. SHALINI PHANSALKARJOSHI, JJ.
Reserved on : 26 th July, 2016
Pronounced on : 4 th October, 2016
ORAL JUDGMENT. : [Per S.C. Dharmadhikari, J.]
1 By this petition under Article 226 of the
Constitution of India, the petitioners are claiming a writ of
mandamus or a writ in the nature of mandamus or any other
appropriate writ, order, or direction as under :
"(b) this Hon'ble Court may be pleased to issue a
Writ of Mandamus or a Writ in the nature of
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Mandamus or any other appropriate Writ, order or
direction under Article 226 of the Constitution of
India :
(i) Quashing of the order of the Respondent No.4
dated 26.6.2015 demanding part payment of
Rs.1,41,93,1897/- from the Petition for grant of stay
in appeal.
(ii) restraining the Respondents by their
servants, agents and subordinates from enforcing the
order dated 26.6.2015 passed by the Respondent
No.3 directing the Petitioners to make part payment.
....
(f) this Hon'ble Court may be pleased to issue a
Writ of Mandamus or Writ in the nature of Mandamus
or any other appropriate Writ, order or direction
under Article 226 of the Constitution of India
(i) Striking down Clause (10) of Notification
No.VAT/1505/CR-382/Taxation-1 dated 21.1.2006
introducing Explanation to Schedule Entry A-45 of
the MVAT Act, 2002 as discriminatory and hence
ultra vires Article 14 of the Constitution of India."
2 The petitioner also claims a similar relief to quash
an order dated 22nd August, 2014, demanding a sum of
Rs.3,21,13,742/- from the petitioner on the sale of pan masala
containing tobacco for the period (Financial Year) 2005-2006.
This order has been passed by respondent No.3.
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3 The writ petition is filed by contending that the
petitioner in this writ petition is a private limited company,
incorporated and registered under the Indian Companies Act,
1956, having its registered office at the address mentioned
herein above.
4 Respondent Nos.1 to 4 are the authorities
exercising powers together with the State itself under the
Maharashtra Value Added Tax Act, 2002 (for short "MVAT").
5 The petitioner, inter-alia, engages itself in the
business of manufacturing pan masala. During the period
under dispute, namely, Financial Year 2005-2006, the
petitioner has manufactured and sold pan masala with or
without tobacco. The petitioner claims that it has discharged
its VAT liability under the MVAT Act. The petitioner
manufactures pan masala not containing tobacco under the
brand name "Star Pan Masala" classifiable under Tariff
Heading 21069020 of the Central Excise Tariff Act, 1985. The
petitioner claims that it has discharged its VAT liability of
12.5% on the sale of such pan masala not containing tobacco.
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At Annexure-A collectively are copies of invoices for sale of
such pan masala.
6 The petitioner also manufactured and sold pan
masala containing tobacco, commonly known as " Guthka" /
"Mawa" under various brand names. That is classifiable under
Tariff Heading 24939990 of the Central Excise Tariff Act, 1985
during the relevant period. The petitioner has claimed
exemption on payment of VAT on sale of such pan masala
containing tobacco under Schedule Entry A-45 of the MVAT
Act, 2002. The relevant period is 1st April, 2005 to 31st March,
2007.
7 The said pan masala containing tobacco is described
in column (2) of the First Schedule to The Additional Duties of
Excise (Goods of Special Importance) Act,1957 (for short "ADE
Act, 1957"). During the period 1st April, 2005 to 28th February,
2006, the petitioners have discharged ADE at 18% on the sale
of such pan masala containing tobacco.
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8 For the period 1st April, 2005 to 28th February,
2006, therefore, the petitioners have claimed exemption from
payment of VAT on sale of such pan masala containing tobacco
under Schedule Entry A-45 of the MVAT Act, 2002.
9 Entry 45 of the Schedule A to the MVAT Act, 2002,
as introduced reads as under :
Sr. Name of the Commodity Conditions & Rate of Date of
No. exceptions Tax (%) effect
as described from time to
Sugar, fabrics and tobacco
time in column 3 of the First
31/01/2006
schedule to the Additional
Duties of Excise (Goods of
Special Importance) Act,
1957.
10 However, in exercise of the powers conferred under
section 9(1) of the MVAT Act, 2002, the State Government of
Maharashtra, vide Notification No. VAT/1505/CR-382/
Taxation-1 dated 21st January, 2006, amended the Schedule A
and Schedule C with effect from 1 st February, 2006, by
inserting Explanation to Schedule Entry A-45 as under :-
"Explanation- For removal of doubts, it is hereby
declared that tobacco shall not include Pan Masala,
that is to say, any preparation containing betel nuts
and tobacco and any one or more of the following
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ingredients, namely :-
(i) Lime, and
(ii) Kattha (Catechu)
whether or not containing any other ingredient such
as cardamom, copra and menthol."
11 With effect from 1st March, 2006, pan masala
containing tobacco falling under 24039990 of the First
Schedule to ADE Act, 1957, was liable to additional duty of
excise @ 18% under the said Schedule. However, the said
tobacco product was exempt from payment of additional duty
of excise in view of exemption Notification No.11/2006-C.E.
dated 1st March, 2006.
12 Simultaneously, the rate of basic excise duty
leviable on such tobacco products under Chapter 24 of the
Central Excise Tariff Act, 1985, was suitably increased with no
change in total excise duty. In other words, practically there
was no exemption from ADE Act, 1957.
13 Consequently, with effect from 1st March, 2006, on
sale of pan masala containing tobacco, petitioners paid
increased amount of central excise duty. It continued to avail
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exemption from payment of VAT vide Entry A-45 of the MVAT
for the period from 1st March, 2006 till 31st March, 2007.
14 Since the said pan masala containing tobacco is
described in column (3) of the First Schedule to The Additional
Duties of Excise (Goods of Special Importance) Act, 1957,
during the relevant period of time, the petitioners have
discharged ADE at 18% on the sale of such pan masala
containing tobacco. Illustrative copies of the invoices for sale of
such pan masala containing tobacco are annexed collectively as
Annexure-B of the paper-book.
15 The petitioner was assessed to tax under the
provisions of the MVAT Act, 2002, by respondent No.3 for the
Financial Year 2005-06 vide assessment order dated 22 nd
August, 2014. The respondent No.3 disallowed the exemption
claimed by the petitioner on pan masala containing tobacco
under Schedule Entry A-45 on which the petitioner had paid
ADE. The respondent No.3 raised a demand of
Rs.3,21,13,742/- on account of sale of Gutkha and Mawa. A
copy of the said assessment order dated 22 nd August, 2014, is
annexed as Annexure-C to the paper-book.
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16 Being aggrieved by the assessment order dated 22 nd
August, 2014, the petitioner has preferred an appeal before the
respondent No.4. During the hearing of the stay application, it
was submitted before the respondent No.4 that the petitioners
are claiming exemption from payment of VAT only on gutkha
and mawa which are tobacco products liable to ADE (GSI)
under section 3 of the ADE Act, 1957. Further the petitioner
has discharged the ADE (GSI) at 18% as against the residual
VAT rate of 12.5% under the MVAT Act, 2002. Further, the
State of Maharashtra has been provided a share from the
undivided pool of the ADE (GSI) as per the Presidential Order
existing during the relevant period of time. Thus, the
petitioner has correctly claimed the exemption under Schedule
Entry A-45. However, the respondent No.4 formed a prima
facie view against the petitioner and ordered part payment of
Rs.1,60,39,180/- vide order dated 22 nd September, 2014. A
copy of the order dated 22nd September, 2014 passed by
respondent No.4 is annexed as Annexure-D to the paper-book.
17 Being aggrieved by the part payment order of the
Respondent No.4, the petitioner filed an appeal before the
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respondent No.5. The respondent No.5, vide order dated 26 th
June, 2015, in VAT Appeal No.971/2014 relied on the
Explanation to Schedule Entry A-45 inserted with effect from
1st February, 2006, to hold that Gutkha or Mawa are covered
under Explanation and no exemption is available for such pan
masala containing tobacco. Hence, the respondent No.4
ordered part payment of Rs.1,41,93,875/- vide order dated 26 th
June, 2015. A copy of the said order dated 26 th June, 2015,
passed by respondent No.5 is annexed as Annexure-E to the
paper-book.
18 The petitioner has also brought to our notice the
following changes which were made by the Taxation Laws
(Amendment Act, 2007. These, according to the petitioner, are
as under :
19 The Parliament omitted Chapter headings 2401,
2402 and 2403 and sub-heading and tariff item thereunder
from the First Schedule to ADE Act 1957 vide section 10,
Taxation Laws (Amendment) Act, 2007 (Act No.16 of 2007)
effective from 1st April, 2007, without losing share of central
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taxes. This enabled States to levy VAT on tobacco with effect
from 1st April, 2007.
20 The objects and reasons of the Taxation Laws
(Amendment) Bill, 2007, read as under :
"5. The Additional Duties of Excise (Goods of
Special Importance) Act 1957, is proposed to be
amended to drop tobacco from the First Schedule of
the Act, to enable the States to levy VAT on tobacco
without losing their share out of the 1% devolution
from the Divisible Pool of Central Taxes."
Para (d) of the Press Note dated 29 th March, 2007,
issued by Press Information of Government of India Bureau is
also to the same effect.
22 To give effect to the above amendment, the State of
Maharashtra further amended Entry A-45 of the MVAT Act,
2002, to remove all references to tobacco in the said entry with
effect from 1st April, 2007.
23 The said Entry A-45 relevant for the period in
dispute reads as under :
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Sr. Name of the Commodity Conditions & Rate of Date of
No. exceptions Tax (%) effect
45 Sugar, fabrics and tobacco Nil % 1-4-2007 to
as described from time to 31-03-2010
time in column 3 of the First
schedule to the Additional
Duties of Excise (Goods of
Special Importance) Act,
1957 (58 of 1957).
24 Trade Circular 29T of 2007 dated 30 th March, 2007,
issued by the Commissioner to the effect tobacco and tobacco
products were covered under Entry A-45 and were free of tax.
The said entry is now amended by removing any reference to
tobacco. Consequently, tobacco products like gutkha etc. shall
be taxable at 12.5% from 1st April, 2007.
25 The petitioner has, accordingly, discharged VAT on
pan masala containing tobacco with effect from 1 st April, 2007
under MVAT Act, 2002. Hence, the period after 1 st April, 2007
is not subject of this petition.
26 An affidavit-in-reply has been filed by the State in
Writ Petition No.9265 of 2015. In the affidavit-in-reply, apart
from raising preliminary objections, what has been submitted is
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that the petitioner in writ petition No.9265 of 2015 filed this
petition in September, 2015, to impugn the provisions of a
Notification dated 21st January, 2006, and the number of which
has been set out in the affidavit in paragraph 2(a). It is
submitted that there is a delay of more than nine years in filing
the petition. The petitioners were aware that an assessment
order was passed disallowing the exemption claimed by the
petitioners on pan masala containing tobacco. That assessment
order was passed on 22nd August, 2014, and notice of demand
was raised on the petitioners. Even after the assessment order
was served, the petitioners waited for over a year to challenge
the provisions of the impugned notification.
27 It is then submitted that prior to this petition being
filed, the petitioners preferred an appeal against the
assessment order before the Joint Commissioner of Sales Tax
(Appeals), Kolhapur. That appeal is still pending. The
petitioner has, inter-alia, submitted in the grounds of that
appeal that it has paid additional duty of excise and the State of
Maharashtra has been provided a share from the undivided
pool of such duty as per the Presidential Order existing during
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the relevant period of time. Thus, the issues that are arising for
consideration in that appeal are similar to those raised in the
present petition. For this reason and when there is alternate
and efficacious remedy available, already availed of, that we
should not entertain this writ petition.
28 Without prejudice to these preliminary objections, it
is then submitted that on merits as well, there is no substance
in the writ petition. ig It is submitted that the petitioner is
attempting to re-agitate issues already decided by the Hon'ble
Supreme Court. An extensive reference is made to the findings
and conclusion which can be deduced from the Hon'ble
Supreme Court's judgment. Summing up the same, it is
submitted that levy of additional excise duties under the ADE
Act, 1957, and distribution thereof to the States does not take
away the State's power to make law with reference to Entry
No.52 or Entry No.54 in List II (State List) to the VIIth
Schedule of the Constitution of India. Once it is accepted that
the State has a power to tax the goods on which additional
excise duties are levied under the ADE, the only issue that
arises is the consequence, if any. That would follow when the
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State so imposes the tax. The State may be deprived of its
shares in the proceeds of the additional duties of excise for that
financial year. This is strictly a matter between the State and
the Centre and the Central Government possesses the power to
direct otherwise. At best, the submissions of the petitioners
amount to an argument for refund which could be easily raised
by the State Government. The matter thus is strictly between
the Centre and the State Governments and the petitioners
cannot in any way be affected or concerned about the same.
Once the State is empowered to legislate, then, the issue of
constitutional validity of the impugned law does not arise. In
the present case, the categorization is justifiable and the
alleged retrospective applicability of the impugned provisions
is the only point to be adjudicated in the pending appeal.
29 That is why in paragraph 7 of the affidavit-in-reply,
it is submitted that Grounds A.1 to E.2 of the petition are
without merit and need no consideration at the hands of this
Court. The purported Tax Rental Agreement for distribution of
additional duties of excise and the levy and distribution of such
duties under the ADE Act, do not prohibit the States from
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imposing sales tax on goods covered by the ADE Act and it is
not open to the petitioners to re-agitate this issue in the light of
the judgment of the Hon'ble Supreme Court.
30 Then, the affidavit-in-reply attempts to distinguish
the judgment of the Hon'ble Supreme Court of India in the case
of Godfrey Phillips (India) Limited & Anr. v. State of Uttar
Pradesh & Ors. (2005) 2 SCC 515. The affidavit-in-reply then
deals with the grounds with regard to the levy and distribution
of additional duties of excise.
31 It is then urged that clause (10) of the impugned
Notification is clarificatory. It is in consonance with the ADE
Act and the Constitution (Distribution of Revenues) No.5 Order,
2005, (hereinafter referred to as "the said Order"). The said
Order is issued under Article 270 of the Constitution. It is,
therefore, submitted that there is nothing contrary to the said
ADE Act or the Constitution Order insofar as clause (1) of the
impugned Notification. It is then elaborated as to how the ADE
Act and the said Order provides that no share shall be payable
to the State in a year where the State levies any tax or duty on
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sale or purchase of the goods described in column (3) of the
First Schedule to the ADE Act. This was reflected in Schedule
Entry A-45 of the MVAT Act which, at the relevant time,
provided that "sugar, fabrics and tobacco as described from
time to time in column (3) of the First Schedule to the
Additional Duties of Excise (Goods of Special Importance) Act,
1957" would not be taxed. Therefore Ground V.2 at page 30 of
the petition is incorrect in interpreting Schedule Entry A-45 as
providing for exemption from levy on all tobacco products
when the said Entry explicitly clarifies that it is only tobacco
products described in column (3) of the First Schedule of the
ADE Act that are exempt. It is submitted that prior to 2001,
pan masala, including pan masala containing tobacco was
classified under chapter 21 "Miscellaneous Edible
Preparations" of the Central Excise Tariff Act, 1985. Note 3 of
Chapter 31 defined pan masala as a preparation containing
betel-nuts, lime and kattha (catechu) and tobacco whether or
not containing any other ingredient, such as, copra and
menthol. The said tariff item was numbered as 2106. It was
only pursuant to the Finance Act, 2001, that pan masala
containing tobacco was classified in Chapter 24 as a tobacco
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product under tariff item 2404.49. This position was reflected
in the First Schedule to the ADE Act. Until 2001 pan masala
was not included in the First Schedule to the ADE Act. It was
only after 2001 that one of the goods described in column (3) of
the First Schedule to the ADE Act was "2404.49 Pan masala
containing tobacco". This clearly indicates that pan masala
containing tobacco is separate and distinct from other tobacco
products and forms a separate class of it's own. That pan
masala containing tobacco is in a separate class from other
tobacco products is also indicated by the fact that pan masala
containing tobacco was not one of the tobacco products
enumerated in Section 14 of the Central Sales Tax Act, 1956 as
goods of special importance in inter-State trade or commerce.
The fact that pan masala intrinsically and commercially differs
from tobacco and its other variants is also clear from the
description of pan masala, which is said to be a preparation
containing betel nuts and one or more of the following
ingredients, namely lime and kattha (catechu) whether or not
containing any other ingredients such as cardamom, copra and
menthol. Unlike the other entries in Chapter 24 of the 1985
Act, pan masala may or may not contain tobacco.
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32 The Finance Act, 2005 (18 of 2005) substituted the
First Schedule to the ADE Act with a new First Schedule that
did not specifically refer to pan masala containing tobacco
anywhere in column (3). Therefore, from 2005, pan masala
containing tobacco is not a good "described" in column (3) of
the First Schedule of the ADE Act. Even according to the
petitioners, pan masala containing tobacco is brought within
the ambit of the ADE Act only by reference to Note 4 in Chapter
24 of the Central Excise Tariff Act, 1985, read with the
reference to the tariff item in Column (2) and is not expressly
referred in Column (3) of the First Schedule to the ADE Act.
33 Since pan masala containing tobacco was no longer
described in column (3) of the First Schedule to the ADE Act, it
no longer fell within the definition of Schedule Entry A-45 in
the MVAT Act. The impugned Notification inserted an
Explanation to Schedule Entry A-45 to clarify this position. In
accordance with well settled principles of law, since the
Explanation is merely clarificatory, it applies retrospectively
from 2005 when pan masala containing tobacco ceased to be
described in column (3) of the First Schedule of the ADE Act.
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34 Thereafter, the affidavit seeks to deal with Grounds
V.1 to V.5 at pages 28 to 30 of the petition. It is submitted that
though strictly not relevant, these Grounds substantiate the
position set out hereinabove inasmuch as that indicates that
the Explanation regarding pan masala was also inserted in the
Bombay Sales Tax Act and operated retrospectively during the
period prior to 2001 when pan masala containing tobacco was
not described in column (3) of the First Schedule to the ADE
Act. It is in these circumstances that the petitioner is not liable
to pay VAT on the sale of gutkha for the Financial Year 2005-
2006 when additional duties of excise was applicable on the
products and has been discharged by the petitioner whether for
the reasons alleged or at all. Grounds S.1 to T.4 and V.1 to W.7
of the petition are denied in the affidavit-in-reply except to the
extent indicated hereinabove.
35 Without prejudice to the above statements in the
affidavit-in-reply, it is then submitted that the tobacco product
was admittedly exempt from payment of additional duty of
excise in view of the Notification No.11/2006-CE dated 1 st
March, 2006. The petitioner cannot claim exemption from VAT
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thereafter as is sought to be done I Grounds X.1 to X.5 of the
petition.
36 While dealing with Grounds Y.1 to Y.5, it is denied
that the States were entitled to levy VAT on tobacco only with
effect from 1st April, 2007. The Trade Circular 29T of 2007
dated 30th March, 2007, as well as the Thirteenth Finance
Commission Report referred to in Grounds Y and Z.1 of the
petition are being deliberately misconstrued by the petitioners
and, in any event, are not determinative of the legal position.
For all these reasons, it is submitted that no relief should be
granted to the petitioners. It has suffered no prejudice. On the
other hand, great loss and prejudice would be suffered by the
Revenue in the event any relief is granted. This is the affidavit-
in-reply filed on 8th February, 2016.
37 A rejoinder affidavit has been filed by one Ravikiran
Sokashi, the Director of the petitioner. In the rejoinder
affidavit it is submitted as to how the petition should not be
dismissed on the preliminary grounds and particularly on
delay and laches. It is submitted as to how the petition
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challenges the order dated 20th June, 2015. Therefore, it
cannot be said to be not maintainable or barred by delay and
laches.
38 Then it is submitted that existence of an alternate
remedy is not a bar to the maintainability of the writ petition,
particularly when the challenge is to the validity of the
Explanation added to Entry A-45 by Notification dated 21st
January, 2006. ig The petitioners' other contention that
amendment introduced by the Notification dated 21st February,
2006, effective from 1st March, 2006, can be prospective and
not applicable for the period 1 st April, 2005 to 28th February,
2006, is also raised in the writ petition.
39 The petitioner then reiterates in this rejoinder the
ground that a Notification dated 21st January, 2006, is beyond
the powers of the State Legislature / Executive under Article
246(3) of the Constitution read with Entry No.54 of Schedule
II. The contentions as raised in the writ petition are reiterated.
40 The petitioner also in paragraph 9 of this affidavit
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relies on Article 261 of the Constitution of India to submit that
the State cannot argue and urge anything to the contrary,
particularly when it has projected and assured the Central
Government / other State Governments that it is complying
with the stipulations in Payment Order under Article 270 and
is not levying sales tax on commodities covered by the
Schedule to the ADE Act. That is why it is entitled to full share
of all Central taxes without any reduction whatsoever. If this is
how it projects its stand before the Constitutional authority and
particularly the Central Government, then, anything to the
contrary should not be permitted to be canvassed. Paragraphs
9 and 10 of this rejoinder refer to this position.
41 Thereafter, it is urged that the judgment in the case
of Godfrey Phillips is squarely applicable to the facts of the
present case. All contentions raised in the grounds and in the
averments in the writ petition have thus been reiterated.
42 It is on this material that we have to consider the
submissions of the learned senior counsel appearing for the
petitioners and of the special counsel appearing for the State.
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43 Mr. Sridharan, the learned senior counsel
appearing on behalf of the petitioners submits that the Tax
Rental Agreement between the Centre and States for collection
of additional duties of excise by the Centre, but distribution of
the same entirely to the State Governments is reflected from
the constitutional scheme itself. Mr. Sridharan would submit
that ordinarily the States are entitled to levy sales tax on sale
of all goods under Entry No.54 of List II to the VIIth Schedule to
the Constitution ig of India. However, in the National
Development Council held in December 1956, the State
Governments entered into an arrangement with the Union
Government in respect of the levy of sales tax on three
commodities, namely, sugar, tobacco and fabrics. As per this
arrangement, the Union shall levy additional excise duties on
these commodities. The entire additional excise duties levied
and collected by the Centre will be disbursed to the States
(except the portion in relation to Union territories). On their
part, the States were to refrain from exercising their power to
levy sales tax on these three commodities. In view of this
arrangement, the Centre has been levying and collecting
additional excise duty since 1957 and distributing the same
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among the States. The inter-se share of the States in
accordance with the percentage / ratio laid down by the
Finance Commission from time to time is determined so as to
give effect to this Rental Agreement.
44 Mr. Sridharan invites our attention to the relevant
paragraph from the Tenth Finance Commission Report issued
in November, 1994, covering the period from 1 st April, 1995 to
31st March, 2000, to explain this Tax Rental Agreement.
Paragraph 6.2 of this Report is also reproduced in the
petitioners' written submissions.
45 These written submissions are tendered in both the
Writ Petitions, but essentially in Writ Petition No.9265 of 2015.
It is, therefore, clear that during the subsistence of this Tax
Rental Agreement, no State while choosing to impose sales tax
on the above commodities shall be eligible to the share in
additional duties of excise. Further, if a State chooses to
reimpose sales tax on any of the above commodities, then, no
sums will be paid to that State as its share in the proceeds from
the additional excise duty of that commodity unless the Central
Government otherwise directs.
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46 Mr. Sridharan then takes us through the legislative
measures to implement the above arrangement prior to 1 st
April, 2000. He submits that the additional excise duty levied
under section 3 of the ADE Act, inter alia, on tobacco products
is entirely distributed to the States as urged above. In that
regard, he relies upon section 3 of the ADE Act and the First
Schedule thereof. The tax levied under the ADE Act is also a
duty of excise since the taxable event is manufacture.
However, the duty levied under the ADE Act is over and above
the duty levied under the Central Excise Act and to distinguish
it from duties levied under the Central Excise Act popularly,
known as additional duties of excise. Then, Mr. Sridharan
relies on section 4 of this ADE Act which provides for a
distribution of the additional duties of excise among the States.
He also relies upon the amendments carried out to the Second
Schedule to the ADE Act by Amending Act enacted by the
Parliament generally every five years. This is based on the
Report of the Finance Commission. The Amending Act,
therefore, will indicate the inter-se share of the States from the
total additional excise duty distributed to the States.
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47 Mr. Sridharan has then contended that the new
alternate method of devolution recommended by the Tenth
Finance Commission to be effective from 1st April, 1996, is
more beneficial to the State. The State Government will get 3%
of all Central taxes in lieu of the share towards additional
duties of excise. This is apart from 26% of the Central taxes
being State's share in Central taxes. Mr. Sridharan then invites
our attention to Articles 270, 271 and paragraph 13 of the
Report of the Tenth Finance Commission to urge that this
would demonstrate that the Finance Commission recommended
25% of the tax collected, including the additional duties of
central excise to be distributed to the States as per their share
of Central taxes. In addition, the Finance Commission
recommended 3% of the total to be distributed to the States as
per their share of the additional duties of excise. Mr. Sridharan
submits that the Central Government accepted the
recommendations of the Tenth Finance Commission. That is
how the Constitution (80th Amendment) Act, 2000, was
introduced on 25th September, 2000, to implement these
recommendations but with some minor modifications. The
Constitution (80th Amendment) Act, 2000, was enacted by the
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Parliament and the amendment was asserted on 19 th June,
2000. Now, the new Article 270 is substituted with
retrospective effect from 1st April,1996. Mr. Sridharan then
invites our attention to the Report of the Eleventh Finance
Commission of June, 2000, for the period 2000-2005 and to
submit that the States were to get 1.5% of the total Central
taxes in lieu of their share of additional duties of excise. Mr.
Sridharan submits that the recommendations are that if any
State levies and collects sales tax on sugar, textile and tobacco
it will not be entitled to any share from this 1.5%. Mr.
Sridharan also invites our attention to the Constitution
(Distribution of Revenues) No.5 Order 2000 issued by the
President. Thereafter, he relies on the recommendations in the
Report of the Twelfth Finance Commission for the period 2005-
2010. Mr. Sridharan submits that even the Constitution
(Distribution of Revenues) No.5 Order 2005 implementing the
recommendations of the Finance Commission would denote
that the State of Maharashtra has been given a share of
additional duties of excise on the condition that they will not
levy any sales tax on the three commodities referred above.
Mr. Sridharan then refers to the scheme set out in the
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Thirteenth Finance Commission Report for the period 2010-
2015. He submits that the State of Maharashtra has received
its share of 3.5% of all Central taxes. It has accepted
throughout this position that it is entitled to this share
provided it does not levy VAT on pan masala containing
tobacco. Therefore, Mr. Sridharan submits that levy of VAT on
pan masala containing tobacco is ultra vires the Presidential
order and the Constitution. He would submit that the State has
also acted contrary to the judgment of the Hon'ble Supreme
Court in the case of Atiabari Tea Company vs. State of Assam
AIR 1961 SC 232. He submits that once the legislative and
constitutional scheme is as above, then, any attempt to
contravene it has to be disapproved and strongly by the Court.
In such circumstances, the Notification dated 21st January,
2006, of the State Government is in clear breach of the
Constitution (Distribution of Revenues) Order 2005 made by
the President of India under Article 270 of the Constitution of
India.
48 Mr. Sridharan then submits that the Hon'ble
Supreme Court in the case of Godfrey Phillips (supra) has held
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that the State cannot levy sales tax on goods covered by
additional duties of excise and relies upon paragraphs 63, 67
and 70 of this judgment.
49 Mr. Sridharan submits thereafter that the
applicability of the ADE Act on pan masala containing tobacco
during the Financial Years 2005-2006 and 2006-2007 has to
be carefully understood. Prior to the amendment made by the
Finance Act of 2001, pan masala containing tobacco fell under
Chapter 21 of the Schedule to the Central Excise Tariff Act,
1985. It was not falling under the Schedule to the AD Act.
There were some disputes regarding the coverage of Entry No.
A-15 of Schedule A of the Bombay Sales Tax Act,1959. To place
the matters beyond doubt, Maharashtra Act No.51 of 2000
amended Schedule A-15 by adding the Explanation. This
Explanation was effective retrospectively only for the period 1 st
October, 1995 to 30th April, 2001. The amended explanation
excluded pan masala whether or not containing tobacco from
Schedule Entry A-15. However, post 2001, the Explanation
was not applicable and pan masala containing tobacco was
being exempted by Entry A-15. The Finance Act 2001 carried
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out certain amendments for pan masala containing tobacco.
The said product was excluded from Chapter 21 and included in
Chapter 24 of the Central Excise Tariff Act, 1985. It was also
included in the First Schedule to the ADE Act. Consequently,
the State of Maharashtra did not amend Schedule Entry A-15.
The exemption from sales tax was being extended to pan
masala containing tobacco since 2001. Mr. Sridharan submits
that Chapter 24 of the First Schedule to the Central Excise
Tariff Act covers ig tobacco and tobacco manufactured
substitutes. Note 4 of this Chapter 24 of the First Schedule to
the Central Excise Tariff Act, 1985, is then referred to by Mr.
Sridharan to urge that the rules of interpretation governing the
interpretation of the Central Excise Tariff Act would also apply
to interpretation of the First Schedule to the ADE Act. On a
bare reading of Note No.4 to Chapter No.24 of the First
Schedule to the Central Excise Tariff Act it is clear that pan
masala containing tobacco is specifically covered under Tariff
Head 24039990. Further since the said tariff item is described
in column (2) of the First Schedule to the ADE Act, the
additional duty of excise covered pan masala containing
tobacco. Further, the supplementary Note 1 to Chapter 21
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relating to Miscellaneous Edible Preparations of the First
Schedule to the Central Excise Tariff Act specifically excluded
pan masala containing tobacco from the ambit of Chapter 21.
Chapter Heading 2403 was omitted from the First Schedule to
the ADE Act only with effect from 1 st April, 2007, vide section
10 of the Taxation Laws (Amendment) Act, 2007 (Act No.16 of
2007) read with the Notification dated 29th March, 2007. The
Schedule Entry A-45 was amended with effect from 1 st April,
2007, to delete reference to tobacco. Mr. Sridharan took us
through all this to emphasize that the Schedules of the Bombay
Sales Tax Act, 1959, and the MVAT Act reflected a clear and
careful policy. In that regard, he refers to Schedule Entry A-15
of the erstwhile Bombay Sales Tax Act, 1959, and Schedule
Entry A-45 of the MVAT Act to submit that the same is an
integrated legislation and in tune with the States'
understanding of the constitutional scheme and the
recommendations of the Finance Commission. Therefore, when
section 10 of the Taxation Laws (Amendment) Act, 2007, was
enacted to exclude tobacco from the Schedule to the ADE Act
effective from 1st April, 2007, then, that has to be
synchronized. The synchronization would be that the
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amendment made by Notification dated 21 st January, 2006,
added an Explanation to Entry A-45 effective from 1 st April,
2007, for the purpose of giving effect to the changes in the ADE
Act. Elaborating this aspect, Mr. Sridharan would submit that
all the three goods, namely, sugar, textiles and tobacco covered
by the First Schedule to the ADE Act, 1957, when exempt from
sales tax vide Entry No.A-45 of the MVAT Act, 2002, post
Notification dated 21st January, 2006, only pan masala
containing tobacco is excluded from the ambit of Entry A-45
though it continues to fall in the First Schedule of the ADE Act,
1957. All other products falling under the Schedule to the ADE
Act, 1957, were continued to be exempted by Entry A-45. It
would demonstrate that exclusion of only pan masala
containing tobacco from Entry No.A-45 is contrary to the object
underlying this Entry. The predecessor Entry A-15 has been in
existence and effective since 1950. The classification
introduced by Notification dated 21st January, 2006, has no
nexus with the object sought to be achieved by the legislation in
the form of Entry A-45. The pan masala containing tobacco has
been singled out for this treatment. This is contrary to the
fundamental objective of Entry A-45 read with the ADE Act. It
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is also violative of Article 14 of the Constitution of India and the
Notification is, therefore, liable to be struck down. From 1 st
April, 2007, tobacco was omitted from Schedule to the ADE Act,
1957, and, consequently, reference to tobacco was deleted in
Entry A-45. This also is in accord with the object of the
legislation and is perfectly valid. Therefore, and in any event,
the amendment made by Notification dated 21 st January, 2006,
should be made effective from 1st April, 2007. The result would
be that the petitioners will not be liable to pay VAT on sale of
gutkha for Financial Years 2005-2006 and 2006-2007 when
the ADE Act was covering these products.
50 Mr. Sridharan emphasizes that the Notification, in
any event, can be effective only from 1 st February, 2006, and
not from 1st April, 2005. In that regard, he submits that we
must give the Explanation added to Schedule Entry A-45,
prospective effect. We should give the same effect only from 1 st
February, 2006. Section 9 of the MVAT Act which empowers
the State Government to amend the Schedule does not contain
the power to give it retrospective effect. Mr. Sridharan relies
upon the language of section 9 to submit that delegated
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legislation cannot have retrospective effect unless provided in
the main section. Mr. Sridharan submits that even if Schedule
Entry A-45 is held to exclude tobacco products in terms of the
Explanation, such exclusion shall take effect only from 1 st
February, 2006. The reason is pan masala containing tobacco
was indeed covered and fell under the First Schedule to the
ADE Act in the Financial Years 2005-2006 and 2006-2007.
Mr. Sridharan submits that any submission and based on
paragraphs 11 to 15 of the affidavit-in-reply of the respondents
is erroneous. The respondents have ignored Note 4 of Chapter
24 of the First Schedule to the Central Excise Tariff Act, 1985,
read with Note 2 to the First Schedule to the ADE Act. This is
not the error in the reply affidavits of the respondents alone.
This is the same error / basis on which the Government issued
the Notification dated 21st January, 2006. During the above
Financial Years, the First Schedule to the ADE Act applied to all
goods falling under Tariff Item 24039990. He once again
reiterates that for Financial Year 2005-2006 the tariff item is
described in column (2) of the First Schedule to the ADE Act
and additional duty of excise is payable on pan masala
containing tobacco @ 18%. This position continued in the
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Financial Year 2006-2007. Mr. Sridharan submits that the
Notification No.11/2006-CE dated 1st March, 2006, issued by
the Central Government clinches the issue. Relying upon the
supplementary Chapter Note 1 to Chapter 21 relating to
Miscellaneous Edible Preparations of the First Schedule to the
Central Excise Tariff Act, Mr. Sridharan submits that it
specifically excludes pan masala containing tobacco from the
ambit of Chapter 21. Then, it is pertinent to note that the First
Schedule to the ADE Act was amended by the Central
Government by Notification dated 29th March, 2007. By that
Notification, any reference to Tariff Headings 2403 and sub-
headings and tariff items thereunder was omitted with effect
from 1st April, 2007. All this would demonstrate that ADE was
payable on pan masala containing tobacco products upto 31st
March, 2007. Hence, it is erroneous to submit that by
substitution of the First Schedule to the ADE Act it cannot be
urged that ADE Act failed to specifically refer to pan masala
containing tobacco in column (3). That is why the State
Government erroneously issued the Notification dated 21 st
January, 2006. The defined and consistent policy of the State
Government is given a go-by by the Notification dated 21 st
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January, 2006. Therefore, this Notification is contrary to the
State Government's policy. It is, therefore, violative of Article
14 of the Constitution of India. Mr. Sridharan has relied on the
following judgments in support of the above contentions :
(1) Cannore Spinning & Weaving Mills Ltd. v. CC & CCE &
Ors. (1969) 3 SCC 112.
(2) Hukam Chand etc. v. UOI & Ors. (1972) 2 SCC 601.
(3) CIT v. Vatika Township Pvt. Ltd. (2015) 1 SCC 1.
(4) Sedco Forex International Drill Inc. & Ors. v. CIT & Anr.
(2005) 12 SCC 717.
(5) UOI v. Martin Lottery Agencies Ltd. (2009) 12 SCC 209.
(6) Dy. CIT v. Core Health Care Ltd. (2008) 2 SCC 465.
(7) State of UP v. Renusagar Power Co. (1998) 4 SCC 59.
(8) Ram Krishna Dalmia & Ors.v. S.R. Tendolkar & Ors. 1959
SCR 279.
(9) Godfrey Phillips India Ltd. v. State of UP (2005) 2 SCC
515.
(10) Kishan Chand Chellaram & Ors. v. Jt. CTO & Ors. 1668(2)
STC 367 (Mad.)
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(11) K.C. Gajapati Narayan Deo & Ors. v. State of Orissa 1954
SCR 1.
(12) P. Vajravelu Mudaliar v. Spl. Deputy Collector for Land
Acquisition 1965 1 SCR 614.
51 He has also taken us extensively through the
provisions of the enactments referred in the foregoing
paragraphs, the Constitution and the Objects and Reasons of
the Taxation Laws (Amendment) Bill, 2007. Mr. Sridharan
has also taken us through the Trade Circulars. All this has
been compiled by the petitioners' advocate in two volumes of
the compilation.
52 On the other hand, Mrs. Jeejeebhoy, learned special
counsel appearing on behalf of the State / Revenue has
submitted that as pointed out in the affidavit-in-reply, the writ
petitions are not maintainable on account of the remedies
available to the petitioners. She has submitted and consistent
with the affidavit, particularly the preliminary objection
therein, that just because the petitioners raise some issues of
legality and validity of the levy does not mean that the
statutory remedies should be given a go-by. If the petitioners'
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contentions are properly appreciated they would reveal that
the petitioners cannot and do not dispute the competence of the
State to issue the Notification. All that the petitioners raise are
some issues and pertaining to the interpretation of the same
and its retrospective operation. They cannot be said to be
outside the purview of the power of the Appellate Authority
who the petitioners can definitely approach. In other words,
Mrs. Jeejeebhoy would submit that questions of law and fact, so
long as they do not touch the constitutionality of the statute
itself, can be adjudicated and decided in appeal. Therefore, we
should not entertain the writ petitions.
53 Alternatively and without prejudice the petitioners
contentions can be summarized as under :
(a) The impugned Notification levies VAT on pan
masala containing tobacco despite the State having received /
accepted the share as per the Distribution of Revenue Order
No.5 and the levy is, therefore, ultra vires the Presidential
Order and hence ultra vires the Constitution. The decision of
the Hon'ble Supreme Court in Godrey Phillips (supra) supports
the submission of the petitioner inasmuch as it purportedly
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held that States cannot levy sales tax on goods covered by the
ADE Act, 1957. The impugned Notification violates Article 14
of the Constitution as the State of Maharashtra has exempted
all other goods covered by the ADE Act. The amendment of
Schedule Entry A-45 by the impugned Notification is
prospective and not retrospective.
(b) The impugned Notification is not ultra vires the
Constitution. Section 3 of the ADE provides for levy and
collection of additional duties. Section 4 of the said Act
provides for distribution of additional duties out of the
Consolidated Fund of India to the States during each Financial
Year in accordance with the provisions of the Second Schedule
to the ADE Act. It is well settled that the State Legislature is
not deprived of its legislative competence to impose sales tax
on goods covered by the ADE Act merely because the State is
receiving a portion of the taxes levied and collected under the
ADE Act.
(c) Apart from the decision of the Supreme Court in the
case of State of Bihar v. Bihar Chamber of Commerce (supra)
there are several decisions of the Supreme Court and High
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Court which hold that the State's power to legislate is not
curtailed by the ADE Act [See State of Kerala v. M/s. Attesee
(1989) Supp 1 SCC 733 at paras 6-8 (page 51, petitioner's
Compilation, Volume II); Akay Cones Pvt. Ltd. v. Lt. Governor of
Delhi (2003) 129 STC 172 (Delhi DB) at para 41 (Page 325,
Petitioner's Compilation, Volume I); M.R. Tobacco Pvt. Ltd. v.
Union of India (2006) 14 STC 211 (Delhi DB) at page. 9 (Page
306, Petitioner's Compilation, Volume I)].
(d)
The petitioners' reliance on the decision in Godfrey
Phillips (supra) is misplaced for the following, amongst other,
reasons. In Godfrey Phillips the Supreme Court was concerned
with the ambit of Entry 62 of List II to the Constitution (para 3)
and not with the legislative competence of the State to impose a
tax on sale of goods on account of the enactment of the ADE Act
and/or because the State is getting a portion of the taxes levied
and collected under the ADE Act, which was the question raised
and considered in State of Bihar v. Bihar Chamber of Commerce
(supra).
(e) As stated in Godfrey Phillips (supra), the ADE Act
has to be read with Article 286 of the Constitution of India.
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Therefore, for Article 286 of the Constitution to apply the goods
must be declared to be of special importance in inter-State
trade or commerce by the Parliament and the restrictions and
conditions must be specified by the Parliament in law. Unlike
tobacco, pan masala containing tobacco has never been
declared to be a good of special importance in inter-State trade
or commerce.
(f) Section 7 of the Act was repealed in 1958 and,
therefore, was not in force in 2006, when the impugned
Notification was issued. Accordingly, at the relevant time, the
ADE Act neither declared any goods to be of special importance
nor imposed any restrictions / conditions as envisaged by
Article 286 of the Constitution. Notably, pan masala containing
tobacco was not even included in the Schedule to the ADE Act
at the time section 7 of the ADE Act was in force.
(g) Section 14 of the Central Sales Tax Act, 1956
declares certain goods to be of special importance in inter-State
trade or commerce. Section 14(ix) of the Central Sales Tax
Act,1956, which referred to tobacco products, was deleted in
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2007. However, even prior to its deletion in 2007, Section 14
did not cover all tobacco products but only listed certain
tobacco products as goods of special importance in inter-State
trade and commerce as follows:
"unmanufactured tobacco and tobacco refuse covered under sub-
heading No.2401.00 cigars and cheroots of tobacco covered under
heading No. 24.02, cigarette and cigarillos of tobacco covered under
sub heading Nos. 2403.11 and 2403.21 and other manufactured
tobacco covered under sub-heading Nos. 2404.11, 2404.12,
2404.13, 2404.19, 2404.21, 2404.29, 2404.31, 2404.39, 2404.41,
2404.50 and 2404.60 of the Schedule to the Central Excise Tariff
Act, 1985."
(h) The petitioners' product (pan masala containing
gutkha/tobacco) admittedly falls under tariff heading
24039990 of the Central Excise Tariff Act, 1985, which tariff
heading was not included in section 14 of the Central Sales Tax
Act.
(i) Section 15 of the Central Sales Tax Act, which
prescribes certain restrictions and conditions, only applies to
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"declared goods". Section 2(c) of the Central Sales Tax Act
clarifies that "declared goods" means goods declared under
section 14 of the Central Sales Tax Act to be of special
importance in inter-State trade or commerce.
(j) Since section 14 of the Central Sales Tax Act did not
include pan masala containing tobacco, neither Article 286 of
the Constitution nor section 15 of the Central Sales Tax Act nor
the provisions of the ADE Act would in any manner restrict the
power of the State to levy sales tax on the said goods. The
findings in Godfrey Phillips (supra) are not applicable qua pan
masala containing tobacco and the decision in Godfrey Phillips
which considers the effect of these provisions is, therefore,
clearly inapplicable and irrelevant.
(k) Article 270 of the Constitution, on a plain reading,
provides for distribution of net proceeds between the Union and
the States. It does not impose any restrictions on the
legislative power of the State. All that it does is to authorise the
President to do so while prescribing the manner and form of
distribution of the net proceeds. In any event and without
prejudice to the foregoing, the said Order issued under Article
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270 of the Constitution cannot and does not impinge on the
legislative power of the State. The said order merely provides
that no share shall be payable to a State in a year where that
State levies tax or duty on the sale or purchase of goods
described in column (3) of the First Schedule to the ADE Act
and any sums paid in excess of the entitlement is recoverable
by the Centre. Therefore, the said Order envisages and
provides for the imposition of tax or duty on goods described in
column (3) of the Schedule to the ADE Act and sets out the
consequences of such levy. On a plain reading the said Order
does not prohibit the levy of any tax or duty by the State. In
the light of the foregoing, it is clear that the petitioners'
submissions are not an argument on constitutional invalidity
but, at best, an argument on refund to the Central Government
of the benefit received by the State. The petitioners are not
concerned with what needs to be done with the Centre,
especially since the requirement, if any, to make such a refund
does not render the law void nor impact the petitioners in any
manner. Even assuming the State's share of ADE were
refunded to the Centre, the petitioners would not be entitled to
refund of ADE paid by it.
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(l) Moreover, without prejudice to the generality of the
foregoing, it is submitted that in the present case pan masala
containing tobacco was not covered by the said Order and/or
Article 270 at the relevant time. Section 116 of the Finance
Act, 2005, replaced the Schedule to the ADE Act with a new
Schedule that does not describe pan masala in the column.
Accordingly, pursuant to the Finance Act, 2005, additional
duty of excise paid on p;an masala is by way of a surcharge
under section 85. Notably, Article 270 clarifies that it does not
apply to any surcharge covered by Article 271 of the
Constitution.
(m) The reliance placed by the petitioner on Article
261(1) of the Constitution is also misplaced. As held by the
Full Bench of the Punjab High Court in Firm Gauri Lal Gurdev
Das v. Jugal Kishore AIR 1959 Pun. 265 at para 17 : "Article
261(1) merely establishes a rule of evidence and does not deal
with jurisdiction".
(n) Pan masala, on the face of it, is different from
tobacco and constitutes a separate class by itself. This is inter
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alia clear from the manner in which pan masala has been
treated even by the Union Legislature. Illustratively, until
2001, pan masala including pan masala containing tobacco,
was classified under Chapter 21 "Miscellaneous Edible
Preparations" of the Central Excise Tariff Act,1985. Note 3 of
Chapter 21 defined pan masala as a preparation containing
betel-nuts, lime and kattha (catechu) and tobacco whether or
not containing any other ingredient, such as copra and
menthol. The said tariff item was numbered as 2106 (page 90
of the petitioners' compilation) and was not included in the
First Schedule to the ADE Act. It was only pursuant to the
Finance Act, 2001, that pan masala containing tobacco was
classified in Chapter 24 as a separate product under tariff item
2404.49. Note 3 in Chapter 21 was amended to clarify that pan
masala covered by Chapter 21 would not have tobacco as an
ingredient. A corresponding change was brought about in
column (3) of the First Schedule to the ADE Act to include
"2404.49 pan masala containing tobacco". Therefore, until
2001 pan masala was not included in either Chapter 24 of the
1985 Act nor in the First Schedule to the ADE Act.
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(o) Without prejudice to the foregoing and assuming
whilst denying that additional duties of excise were being
levied on pan masala under the ADE Act even after the Finance
Act, 2005, all tobacco products covered by the ADE Act were
exempt from payment of additional duty of excise pursuant to
Notification No.11/2006-CE dated 1st March, 2006. In the
circumstances, even gong by the petitioners' case, the
petitioners cannot claim exemption from VAT thereafter. In
the circumstances, the only issue that arises is whether the
explanation to Schedule Entry A-45, introduced by the
impugned Notification, operates retrospectively. As set out
above, this is an issue that can and ought to be considered by
the Appellate Forum under the MVAT Act.
(p) Under the ADE Act section 4 provides for
distribution of additional duties among States in accordance
with the provision of the Second Schedule.
(q) It is well settled that an exemption is to be strictly
construed. Since pan masala containing tobacco was no longer
described in column(3) of the First Schedule to the ADE Act, it
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did not fall within the definition of Schedule Entry A-45 in the
MVAT Act. Moreover, from 1st April, 2005, pan masala was
subject to additional duty of excise under section 85 of the
Finance Act, 2005, as set out above. The impugned Notification
inserted an Explanation to Schedule Entry A-45 to clarify this
position. In accordance with well settled principles of law,
since the Explanation is merely clarificatory, it applies
retrospectively from 2005 when pan masala containing tobacco
ceased to be described in column (3) of the First Schedule of the
ADE Act.
54 For the above reasons, therefore, Mrs. Jeejeebhoy
would submit that the writ petitions be dismissed.
55 For properly appreciating the rival contentions, it
would be proper and worthwhile if we first refer to the
constitutional provisions and thereafter the respective Acts.
56 As far as the Constitution is concerned, the parties
have referred and relied upon the following Articles and the
Entries in List II to the VIIth Schedule of the Constitution.
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57 For ready reference we reproduce them :
"269. Taxes levied and collected by the
Union but assigned to the States .- (1) Taxes on
the sales or purchase of goods and taxes on the
consignment of goods shall be levied and collected by
the Government of India but shall be assigned and
shall be deemed to have been assigned to the States
on or after the 1st day of April, 1996 in the manner
provided in clause (2).
Explanation.- For the purposes of this clause, -
(a) the expression "taxes on the sale or purchase of
goods" shall mean taxes on sale or purchase of
goods other than newspapers, where such sale or
purchase takes place in the course of inter-State
trade or commerce;
(b) the expression "taxes on the consignment of
goods" shall mean taxes on the consignment of
goods (whether the consignment is to the person
making it or to any other person), where such
consignment takes place in the course of inter-
State trade or commerce.
(2) The net proceeds in any financial year of any
such tax, except in so far as those proceeds represent
proceeds attributable to Union territories, shall not
form part of the Consolidated Fund of India, but shall
be assigned to the States within which the tax is
leviable in that year, and shall be distributed among
those States in accordance with such principles of
distribution as may be formulated by Parliament by
law.
(3) Parliament may by law formulate principles
for determining when a sale or purchase of, or
consignment of, goods takes place in the course of
inter-State trade or commerce.
270. Taxes levied and distributed
between the Union and the States. - (1) All taxes
and duties referred to in the Union List, except the
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duties referred to in the Union List, except the duties
and taxes referred to in articles 268, 268A and 269,
respectively, surcharge on taxes and duties referred
to in article 271 and any cess levied for specific
purposes under any law made by Parliament shall be
levied and collected by the Government of India and
shall be distributed between the Union and the States
in the manner provided in clause (2).
(2) Such percentage, as may be prescribed, of
the net proceeds of any such tax or duty in any
financial year shall not form part of the Consolidated
Fund of India, but shall be assigned to the States
within which that tax or duty is leviable in that year,
and shall be distributed among those States in such
manner and from such time as may be prescribed in
the manner provided in clause (3).
In this article, "prescribed" means-
(i) until a Finance Commission has been
constituted, prescribed by the President by
order, and
(ii) after a Finance Commission has been
constituted, prescribed by the President by
order after considering the recommendations of
the Finance Commission.
271. Surcharge on certain duties and taxes
for purposes o the Union .-Notwithstanding
anything in articles 269 and 270, Parliament may at
any time increase any of the duties or taxes referred
to in those articles by a surcharge for purposes of the
Union and the whole proceeds of any such surcharge
shall form part of the Consolidated Fund of India.
.... .... ....
286. Restrictions as to imposition of
tax on the sale or purchase of goods .-(1) No law
of a State shall impose, or authorise the imposition of,
a tax on the sale or purchase of goods where such sale
or purchase takes place-
(a) outside the State; or
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(b) in the course of the import of the goods into, or
export of the goods out of, the territory of India.
(2) Parliament may by law formulate principles
for determining when a sale or purchase of goods
takes pace in any of the ways mentioned in clause (1).
(3) Any law of a State shall, in so far as it
imposes, or authorises the imposition of ,-
(a) a tax on the sale or purchase of goods declared
by Parliament by law to be of special importance
in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a
tax of the nature referred to in sub-clause (b),
sub-clause (c) or sub-clause(d) of clause (29A) of
article 366,
be subject to such restrictions and conditions in
regard to the system of levy, rates and other incidents
of the tax as Parliament may by law specify.
............
LIST II - State List
............
52. Taxes on the entry of goods into local area
for consumption, use or sale therein.
54. Taxes on the sale or purchase of goods other
than newspapers, subject to the provision of entry
92A of List I."
58 Mr. Sridharan's contentions can very well be
appreciated if we analyse the Articles of the Constitution at the
threshold. Mr. Sridharan has referred to the three Articles
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reproduced above, namely, 269, 270 and 271 which fall under
Part XII titled as "Finance, Property, Contracts and Suits". It is
common ground that Article 264 of the Constitution in which
this Chapter I - 'Finance' opens with a sub-heading 'General'
defines the Finance Commission to mean a Finance Commission
constituted under Article 280. Article 265 which also falls in
the Part declares that taxes not to be imposed, save by
authority of law. Article 266 deals with consolidated funds and
public accounts of India and of the States. Article 267 is titled
'Contingency Fund'.
59 Then comes a sub-heading of this Part, namely,
"Distribution of Revenues between the Union and the States".
Article 268 deals with duties levied by the Union but collected
and appropriated by the States. By clause (2) it clarifies that
such stamp duties and such duties of excise on medicinal
preparations as are mentioned in the Union List shall be levied
by the Government of India, but shall be collected as set out
particularly in that clause. Clause (2) of Article 268 states that
the proceeds in any financial year of any such duty leviable
within any State shall not form part of the Consolidated Fund of
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India, but shall be assigned to that State. Then comes Article
268A which was inserted by Constitution (88 th Amendment)
Act, 2003 (section 2) and is titled as 'Service tax levied by
Union and collected and appropriated by the Union and the
States', but this Article has yet to be enforced.
60 Article 269 which we have reproduced deals with
taxes levied and collected by the Union but assigned to the
States. There has been a substitution of this Article by the
Constitution (80th Amendment) Act, 2000. Now, with effect
from 9th June, 2000, this Article and divided into three clauses
states that the taxes on the sale or purchase of goods and taxes
on the consignment of goods shall be levied and collected by the
Government of India, but shall be assigned and shall be deemed
to have been assigned to the States on or after the 1 st day of
April, 1996 in the manner provided in clause (2). Therefore,
the explanation below it defines the words and expressions
"taxes on sale or purchase of goods and taxes on the
consignment of goods and both take place in the course of inter-
State or commerce. Thereafter, by clause (2), it is stated that
the net proceeds in any financial year of any such tax except
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insofar as those proceeds represent proceeds attributable to
Union territories, shall not form part of the Consolidated Fund
of India but shall be assigned to the States which the tax is
leviable in that year and shall be distributed among those
States in accordance with such principles of distribution as
may be formulated by Parliament by law and the determination
has to be by formulation of principles and that is provided by
clause (3). Article 270 which also had been substituted by the
same Constitutional Amendment Act deals with taxes levied
and distributed by the Union and the States. One would,
therefore, clearly appreciate and understand that this is a
scheme of distribution of the Revenue between the Union and
the States and for that distribution to take place and be
effective it had to be clarified that which duties could be levied
by the union but collected and appropriated by the States,
which taxes levied and collected by the union can be assigned
to the States and the taxes levied and distributed between the
Union and the States. It is in Article 270 that one finds that
there is a reference to all taxes and duties referred to in the
Union List except those duties and taxes referred in the
preceding Articles, surcharge on taxes and duties referred to in
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Article 271 and any fees levied for any specific purposes shall
be levied and collected by the Government of India and shall be
distributed between the Union and the States in the manner
provided in clause (2) of Article 270. Therefore, the scheme is
to distribute the taxes and duties except those in clause (1) in
accordance with the manner provided in clause (2). It is in
clause (2) of Article 270 that we find a reference to the
percentage of distribution. The manner of such percentage has
to be prescribed by the Finance Commission and till a Finance
Commission has been constituted, it can be prescribed by the
President by Order and after the Finance Commission has been
constituted, it shall be prescribed by the President by Order
after considering the recommendations of the Finance
Commission.
61 Article 271 deals with surcharge on certain duties
and taxes for purposes of Union and opens with a non obstante
clause. Therefore, notwithstanding anything in Articles 269
and 270, the Parliament may any time increase any of the
duties or taxes referred to in those Articles by a surcharge for
the purpose of the union and the whole proceeds of any such
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surcharge shall form part of the Consolidated Fund of India. We
are really not concerned with the other Articles of this Part for
the simple reason that we are then taken through the
miscellaneous financial provisions. Though they follow Article
280 which is titled as 'Finance Commission' what is referred
therein is Article 286. It is clear that there are restrictions as
to imposition of tax on the sale and purchase of goods and no
law of a State shall impose or authorise the imposition of a tax
on the sale or purchase of goods where such sale or purchase
taxes place (a) outside the State; or (b) in the course of the
import of the goods into, or export of the goods out of, the
territory of India. Once again, the principles for formulating as
to when such sale or purchase of goods takes places and in the
ways mentioned in clause (1) of Article 286 is left to the
Parliament and who shall may by law do so.
62 By Article 286(3), it is clarified that any law of a
State shall insofar as it imposes or authorises the imposition of
(a) a tax on the sale or purchase of goods, being a tax of the
nature referred to in Article 366 (29A) sub-clauses (b), (c) or
(d), then, such imposition or authorising of the imposition
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would be subject to such restrictions and conditions in regard
to the system of levy, rates and other incidence of tax as
Parliament may by law specify.
63 The constitutional provisions, so far referred, to our
mind to not indicate that the State is denuded, much less
divested of its power to levy and impose a tax on sale or
purchase of goods. Therefore, Schedule VII List II Entry 54
authorises the State Legislature to impose taxes on sale or
purchase of goods other than newspapers, subject to the
provisions of Entry 92A of List I.
64 We have no hesitation in agreeing with Mrs.
Jeejeebhoy when she submits that these constitutional
provisions create no embargo on the State's power to impose
tax on the sale or purchase of pan masala containing tobacco.
65 The writ petition is filed to strike down clause (10)
of the Notification dated 21st January, 2006.
66 That Notification, to the extent relevant, reads as
under :
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"... ... ... ...
(10) In Entry 45, in column (2), the following
Explanation shall be added, namely:-
Explanation:- For removal of doubts, it is hereby
declared that Tobacco shall not include Pan Masala,
that is to say any preparation containing Betel Nuts
and Tobacco and any one or more of the following
ingredient, namely :-
(i) Lime; and (ii) Kattha (catechu),whether or
not containing any other ingredients such as
Cardamom, Copra and Menthol."
67 Therefore, in Entry 45 in the Maharashtra Value
Added Tax Act, 2002, in column (2), the Explanation as above
shall be added.
68 A bare perusal of this would indicate that the doubts
were sought to be removed. The doubts whether tobacco would
include pan masala. That has been clarified by declaring that
tobacco shall not include pan masala i.e. to say any preparation
containing betel-nuts and tobacco and any one or more of the
ingredients in sub-clause (1) to clause (10). To be precise the
Government of Maharashtra amended by the Notification with
effect from 1st February, 2006, Schedules A and C appended to
the Maharashtra Value Added Tax Act in terms of the powers
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conferred by section 9(1) of the MVAT Act. That power is of
adding or modifying or deleting any entry in the schedule. The
power is of amendment of the Schedule as above and equally to
reduce or enhance the rates of tax or for specifying the rates of
tax or for specifying the rates of tax where nil rates are
specified.
69 Mr. Sridharan also relies upon the Constitution
(Distribution of Revenues) No. 5 Order, 2005. That is issued in
exercise of the powers conferred by Article 270. That is issued
by the President after having considered the recommendations
of the Twelfth Finance Commission. That is setting out the
percentage of the net proceeds of the taxes and duties referred
to in clause (1) of Article 270 other than service tax which are
to be assigned to the States under clause (2) of that Article in
each financial year commencing on and after the first day of
April, 2005, but ending before the first day of April, 2010. The
percentage is 29½% to be distributed among the States as per
the table.
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70 We need not refer to Articles 270 to 281 of the
Constitution prior to 2000 and Article 270 to 281 of the
Constitution post 2000 for the simple reason that we are
considering the question about the State Legislature's power to
tax pan masala with tobacco. Prior to that we must refer to
Schedule A.
71 Schedule A of the Maharashtra Value Added Tax
Act, 2002, is referable to the substantive provisions contained
in section 5 of the MVAT Act. Section 5 states that subject to
the other provisions of the MVAT Act and the conditions or
exceptions, if any, set out against each of the goods specified in
column (3) of the Schedule A, no tax shall be payable on the
sales of any goods specified in column (2) of that Schedule. It is
in that context we must see the entries in Schedule A. Once
they are referable to section 5 and no tax is payable on the
sales of any goods specified in column (2) of that Schedule,
then all that one has to find is whether there are any other
provisions of the Act, namely, MVAT Act and the conditions or
exceptions, if any, set out against each of the goods specified in
column (3) in so far as pan masala with or without tobacco. It
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is conceded as far as the name of the commodities in Entry A-
45, is concerned, they are sugar, fabrics and tobacco as
declared from time to time in column (3) of the First Schedule
to the ADE Act. An Explanation has been added by the
Notification and which we have reproduced above - Clause (10)
of the Notification dated 21st January, 2006. this entry never
included Pan Masala and that is clarified by explaining that
tobacco referred therein shall not include Pan Masala. What is
meant by Pan Masala is then explained and clarified by the
Explanation.
72 Mr. Sridharan has relied upon the Additional Duties
of Excise (Goods of Special Importance) Act, 1957. That Act
has been numbered as Act No.58 of 1957 and it has been
brought into effect on 24th December, 1957. It is an Act to
provide for the levy and collection of additional duties of excise
on certain goods and for the distribution of a part of the net
proceeds thereof among the States in pursuance of the
principles of distribution formulated and the recommendations
made by the Finance Commission. The term "additional duties"
is defined in section 2 clause (a) to mean a duty of excise levied
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and collected under sub-section (1) of section 3 of the ADE Act.
Section 3 sets out the levy and collection of additional duties
and these shall be in respect of goods described in column (3) of
the First Schedule to the ADE Act produced or manufactured in
India and on all such goods lying-in-stock within the precincts
of any factory, warehouse or other premises where the said
goods were manufactured, stored or produced or in any
premises appurtenant thereto. There shall be levied and
collected duties of excise at the rate or rates specified in
column (4) of this Schedule on these goods. These are
additional duties and that is clarified by sub-section (2) of
section 3 for they are in addition to duties of excise chargeable
on such goods under the Central Excise Act or any other law for
the time being in force. Then, there is a provision for
distribution of additional duties among States and that has not
been done in accordance with the provisions of the Second
Schedule to the ADE Act. As far as the petitioners' are
concerned they do not dispute that they are manufacturers of
pan masala not containing tobacco under the brand name "Star
Pan Masala" classifiable under Tariff Heading 21069020 of the
Central Excise Tariff Act, 1985. They have discharged VAT
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liability on sale of such pan masala not containing tobacco. It is
conceded that the sale of this pan masala and not containing
tobacco is not a subject matter of the writ petitions. The
petitioners in these petitions are concerned with pan masala
containing tobacco normally known as Gutkha / Mawa under
various brand names. The said pan masala containing tobacco
was classifiable under Tariff Head 24039990 of the Central
Excise Tariff Act, 1985 during the relevant period.
However, on the petitioners' own showing until
2001, Chapter 21 of the Central Excise Tariff Act, 1985, dealt
with "Miscellaneous Edible Preparations". Note 3 of Chapter 21
defined pan masala to mean any preparation containing betel-
nuts and any one or more of the ingredients, namely, lime,
kattha (catechu) and tobacco, whether or not containing any
other ingredients such as cardamom, copra and menthol. The
description of goods so far as Chapter 21 is concerned is
divided into heading number, sub-heading number, description
of goods, rate of duty. Heading No.21.06 was titled as pan
masala. There is a separate entry for betel-nut powder known
as "supari". As far as the ADE Act is concerned, that has a
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Schedule and annexed to it, styled as First Schedule. The
petitioners rely upon Chapter 24 of the Central Excise Tariff
Act, 1985, in which after the Finance Act 2001, it classified pan
masala containing tobacco as 2404.09. Mrs. Jeejeebhoy is
right in submitting that pan masala on the face of it is different
from tobacco and constitutes a separate class by itself. We
have perused Chapters 21 and 24 of the Central Excise Tariff
Act and as appearing in the compilation tendered by the
petitioners from pages 88 to 90, 93, 96 and 101.
ig The
corresponding Note, namely, Note No.3 in Chapter No.21 was
amended to clarify that pan masala covered by Chapter 21
would not have tobacco as an ingredient. Corresponding to that
was the change brought about in column (3) to the First
Schedule of the ADE Act to include Tariff Entry 2404.49,
namely, pan masala containing tobacco (page 111 of the
petitioners compilation). Thus until 2001, pan masala was not
included in either page 24 of the Central Excise Tariff Act nor
in the the First Schedule to the ADE Act.
74 We also agree with Mrs. Jeejeebhoy when she
contends that even after pan masala was brought within the
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purview of the ADE Act, it was never declared by the
Parliament to be one of the goods of special importance in inter-
State trade and commerce covered by sections 14 and 15 of the
Central Sales Tax Act, 1956. We also agree with her that from
2005, the levy of additional duties of excise on pan masala was
by way of a surcharge for the purpose of the Union and the
entry describing pan masala in the column to the First
Schedule to the ADE Act was deleted. From the entry itself, it is
apparent that pan masala containing tobacco is known to the
commercial world as different from tobacco. Pan masala is said
to be a preparation containing betel-nuts and one or more of the
ingredients referred above. Unlike the other entries in Chapter
24 of the 1985 Act, essentially dealing with tobacco, pan
masala may or may not contain tobacco.
75 The essential complaint is that having been
included as above in the First Schedule to the ADE Act, the
State is denuded of its power to levy MVAT on pan masala
containing tobacco.
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76 If we have to decide this issue, we must find out
some prohibition in the Constitution and by which VAT on pan
masala containing tobacco cannot be levied.
77 We are in agreement with Mrs. Jeejeebhoy that the
petitioners arguments must be focusing on the constitutional
validity and must establish and prove that this levy is ultra
vires the Constitution.
We have, in detail, referred to the constitutional
provisions only to deal with this contention.
79 Mr. Sridharan with great emphasis and all
persuasive ability at his command submits that the State of
Maharashtra has received/accepted the share as per
distribution of Revenue Order No.5 and hence levy of VAT on
pan masala containing tobacco is ultra vires the Presidential
Order and ultra vires the Constitution. We are unable to agree
with him. On the own showing of Mr. Sridharan, he analyses
the Constitution (Distribution of Revenues) No.5 Order 2000
issued by the President in his oral and written arguments
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(refer paragraphs 15.1 to 15.3) but concedes that under this
scheme of distribution the State which levies the sales tax on
one on the commodities liable to additional duties of excise,
such State shall not be eligible for the share on all other
commodities also. Apart from the fact that tobacco is described
and referred to in the Schedule to the ADE Act and pan masala
containing tobacco being a distinct commodity known to the
commercial world, we do not think that this argument, even if
accepted, would demonstrate and prove that the levy is
unconstitutional. At best that can impact the share of the State
Government in the revenues or taxes levied and collected by
the Centre in the State of Maharashtra. The entire
constitutional scheme and as pressed into service by Mr.
Sridharan will not enable us to conclude that levy of VAT on
pan masala containing tobacco is ultra vires the Constitution.
There is no embargo and of the nature specified in Article 286
of the Constitution of India and pressed into service. All that is
pressed into service is the Tax Rental Agreement between the
Centre and the States for collection of additional duties of
excise by the Centre, but distribution of the same entirely to the
State Governments, the legislative measures followed to
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implement the arrangement as above prior to 1 st April, 2000,
and thereafter. The 1980 Amendment Act to the Constitution,
the Report of the Eleventh Finance Commission, Twelfth
Finance Commission for the period 2005-2010 and the further
Finance Commissions. We have already noted the argument
that the State of Maharashtra has received / accepted the share
as per this Presidential Order. However, we do not find that all
this would come to the aid of Mr. Sridharan in establishing and
proving his case that the levy is ultra vires the constitutional
scheme and the Articles noted above.
80 Mr. Sridharan's emphasis on the judgment of
Godfrey Phillips (supra) is misplaced.
81 Godfrey Phillips is a five-Judge judgment delivered
by the Hon'ble Supreme Court. That concerned the
manufacturers, dealers or sellers of tobacco and tobacco
products. That challenged the composition and levy of a luxury
tax on tobacco and tobacco products by treating them as
luxuries within the meaning of the word in Entry 62 of the
State List (List II). That is an exclusive power of the State
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Legislature to make laws with respect to taxes on luxuries
including taxes on entertainments, amusements, betting and
gambling. Several States enacted legislation which they claim
is referable to the right to tax luxuries under this Entry. The
Hon'ble Supreme Court was concerned with the Uttar Pradesh
Tax on Luxuries Act, the Andhra Pradesh Tax on Luxuries Act
and the West Bengal Tax on Luxuries Act. The Hon'ble Supreme
Court referred to all the State Acts and then noted the
contentions. The constitutional scheme insofar as the Entry
No.54 of List II is concerned, that has not been touched at all
(see para 59). Thereafter, in para 60 of this judgment the
limitation on States jurisdiction to levy sales tax placed by
Article 286 has been referred. Then, in paragraph 63, there is
a reference made to the Taxation scheme on tobacco. Then
from paragraph 64, the ADE Act and its charging section is
referred. Therefore, there shall be levied and collected in
respect of the goods, namely, sugar, tobacco and cotton fabrics
etc., the levy of additional duties of excise and its collection. In
paragraph 65, the Hon'ble Supreme Court held that no State
can levy luxury tax on items covered by section 3 of the ADE
Act in respect of the goods for the same taxable event, namely,
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goods stored on manufacture, just by describing the goods as
luxury goods. Then, in paragraph 67, the Hon'ble Supreme
Court held thus :
"67. However, while widening the scope of Entry
54 of List II, the powers of the States to levy such tax
are subjected to a corresponding restriction as a
consequence of the constitutional curbs imposed on
sales tax under Article 286 read with Sections 14 and
16 of the Central Sales Tax Act,1956 and the ADE
Act, 1957. The tax leviable by virtue of sub-clause (a)
of clause (29-A) of Article 366 of the Constitution
thus becomes subject to the same discipline to which
any levy under Entry 54 of the State List is made
subject to under the Constitution. The position is the
same when we look at Article 286 of the Constitution.
If any declared goods which are referred to in Section
14 of the Central Sales Tax Act, 1956, are involved in
such transfer, supply of delivery, which is referred to
in clause (29-A) of Article 366, the sales tax law of a
State which provides for levy of sales tax thereon will
have to comply with the restrictions mentioned in
Section 15 of the Central Sales Tax At, 1956."
82 We do not see how any of these paragraphs would
support and lend credence to the arguments of Mr. Sridharan
before us. The Hon'ble Supreme Court merely declares that
while widening the scope of Entry No.54 of List II, the powers of
the State to levy such tax are subjected to a corresponding
restriction as a consequence of the constitutional curbs
imposed on sales tax under Article 286 read with sections 14
and 15 of the Central Sales Tax Act, 1956, and the ADE Act,
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1957. In paragraph 70 the Hon'ble Supreme Court declared
further and held that even if tobacco is an article of luxury, a
tax on its supplies is the exclusive competence of the State but
subject to the above constitutional curbs. Therefore, Mrs.
Jeejeebhoy is right in submitting that the reference to this
judgment and the emphasis on the above observations therein
is misplaced. Mr. Sridharan would like to rely on these
observations but he must demonstrate as to how the curbs in
the constitutional and statutory provisions noted above take
within its import the levy of VAT on pan masala containing
tobacco. The difficulty in Mr. Sridharan's way is obvious
inasmuch as there is nothing in the judgment of Godrey Phillips
which would dilute the pronouncement in the case of State of
Bihar vs. Bihar Chamber of Commerce (1996) 9 SCC 136 .
Mr.Sridharan would submit that this judgment cannot be of
assistance. Not only this but the other judgments are sought to
be distinguished by urging that they are relating to a period
prior to 1st April, 2000, when distribution in Central taxes was
not governed by the Constitution (Distribution of Revenues)
Order issued by the President. We are not concerned here with
the period but we are concerned with the interpretation of the
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constitutional provisions and its impact on the subject levy. We
cannot brush aside the dictum in the case relied upon,
particularly the State of Bihar (supra) where the Hon'ble
Supreme Court emphatically declares that the ADE Act is also
not a law made under and with reference to Article 252 of the
Constitution, which Article empowers the Parliament to make a
law with respect to any matter mentioned in List II, if two or
more States pass resolutions requesting the Parliament to
make a law in that behalf. We cannot do better then reproduce
the relevant paragraphs of the State of Bihar (supra) and
which are rightly pressed into service by Mrs. Jeejeebhoy.
"27. Section 3 provides for levy and collection of
additional duties. Section 4 provides for distribution
of additional duties among the States. It says that
during each financial years there shall be paid out of
the Consolidated Fund of India to the States, in
accordance with the provisions of the Second
Schedules such sums, representing a part of the net
proceeds of the additional duties levied and collected
during that financial year, as are specified in the
Schedule. Section 5 says that any expenditure
incurred under the Act shall be charged to the
Consolidated fund of India. Section 6 confers the rule-
making power upon the Central Government. The
proviso to Rule (2) in the Second Schedule to the Act
is of crucial relevance to us. Rule (2) along with its
proviso reads thus:
"During each of the financial years commencing
on and after the Ist day of April, 1974 there
shall be paid to each of the States specified in
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column 1 of the Table below such percentage of
the net proceeds after deducting therefrom a
sum equal to 1.41 per cent of the said proceeds
as being attributable to Union Territories, as is
set out against it in column 2.
Provided but if during the financial year there is
levied and collected in any State a tax on the
sale or purchase of sugar, tobacco, cotton
fabrics. woollen fabrics. rayon or artificial silk
fabrics or one or more of them by or under any
law of that States no sums shall be payable to
that State under this paragraph in respect of
that financial year unless the Central
Government by special order otherwise directs."
28. The proviso states that if during a given
financial years a State levies and collects a tax on the
sale or purchase of scheduled goods or on any one or
more of the scheduled goods by or under a law of that
States no sums shall be payable to that state under
this paragraph in respect of that financial year,
unless the Central Government by special order
directs otherwise. There is no reference in the Act or
in the Statement of Objects and Reasons to any tax
other than the tax on sale or purchase of goods. There
is no ambiguity in the language of the proviso to Rule
(2), which is a part of the statute.
29. The A.D.E. Act is enacted by the Parliament
with reference to Entry 84 in List-I of the Seventh
Schedule to the Constitution whereas the impugned
enactment is made by the State with reference to
Entry 52 in List-Il. The power to levy taxes on sale or
purchase of goods is conferred upon the States and
the States alone by Entry 52 in List II. The Parliament
cannot make a law either with reference to Entry 52
or for that matter with reference to Entry 54. The
A.D.E. Act is also not a law made under and with
reference to Article 252 of the Constitution, which
article powers the Parliament to make a law with
respect to any matter mentioned in List- II, if two or
more States pass resolutions requesting the
Parliament to make a law in that behalf. The
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impugned Act is also not relatable to any of the
Articles 249 to 253 which are in the nature of
exceptions to the normal rule that Parliament can
make no law with respect to the entries in List-II. If
so, it follows that the State legislatures are not
denuded or deprived of their power to make a law
either with reference to Entry 52 or with reference to
Entry 54 in List-II. That power remains untouched
and unaffected. All that the Parliament has said by
enacting the A.D.E. Act is that it will levy additional
duties of excise and distribute a part of the proceeds
among the State provided the States do not levy taxes
on sale or purchase of the scheduled commodities.
The Parliament has also provided the consequence
that follows if any State levies tax on sale or purchase
of scheduled commodities; all that happens is that the
State will be deprived of its share in the proceeds of
additional duties of excise for that financial year.
Even this is subject to the power of the Central
Government to direct otherwise. The Parliament
could not, and did not, prohibit any State from
making any law or levying any tax which a State can
levy by virtue of the entries in List-II. The decision of
this Court in State of Kerala v. M/s. Attesee [Agro
Industrial Corporation] (1989 Suppl.(1) S.C.C. 73 :
AIR 1989 SCC 222) does bear out our understanding.
At Page 744, this Court observed:
"The 1957 Act also has a bearing on the sales tax
levy of various States. By levying sales tax on an
item covered by the schedule to the 1957 Act,
the State will have to forego its share on
distribution of the proceeds of the additional
excise duty levied. Whether it should impose
sales tax on an item of declared goods, limited by
the restrictions in Section 15 pf the CST Act and
at the risk of losing a share in the additional
excise duty levied in respect of those very items,
is for the State to determine. As pointed out by
Sri Poti, it was open to the Kerala Legislature to
decide - and it did so also - that on some items
there should be one or other of the levies or both
of them and to modify these levies depending
upon its financial exigencies. But these factual or
periodical variations do not detract from the
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basic reality that the policy of sales tax levy on
declared goods has to keep in view, and be
influenced by, the provisions of the CST Act and
the 1957 Act."
83 Therefore, it is not only in this judgment, but in
other judgments where the Supreme Court holds that the
State's power to legislate is not curtailed by the ADE Act. If
that is not curtailed, then, any reliance on the constitutional
scheme of distribution of revenues and taxes cannot be of
assistance. That would probably deprive a State of its share in
the revenue even if a tax is levied and collected in that State,
but would not denude it of its power which is otherwise
traceable to the constitutional provisions referred above.
Apart from the fact that we do not find the levy to be such as
would deprive the State of its share even in Central taxes, we
are not in agreement with Mr. Sridharan that VAT on pan
masala containing tobacco is ultra vires the Constitution.
84 We are in agreement with Mrs. Jeejeebhoy that
Godfrey Phillips is more on the ambit and scope of ADE Act and
its reading along with Article 286 of the Constitution of India.
The levy in this case is also not affected by sections 14 and 15
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of the Central Sales Tax Act, 1956. None of the constitutional
provisions pressed into service by Mr. Sridharan and
reproduced in the foregoing paragraphs indicate that the
legislative power of the state is in anyway curbed or curtailed.
85 Once the above view is taken, we are not then
required to opine and hold whether clause (10) of the
impugned Notification is clarificatory. We have found that to be
in consonance with the provisions of the ADE Act and the
Presidential Order. Even otherwise, we are in agreement with
Mrs. Jeejeebhoy that this clause is clarificatory. It only
clarifies the existing position in law.
86 Having taken care of all the arguments of the
petitioners, we do not find it necessary to express an opinion on
the ambit and scope of Article 261 of the Constitution. The
other judgments dealing with sugar and its listing or insertion
in the ADE Act, 1957, the impact thereof are all not relevant
for our purpose. The principle that sub-ordinate legislation
cannot be given retrospective effect equally is of no assistance
in the facts and circumstances of the present case. We are not
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concerned here with tobacco but a product (pan masala)
containing tobacco. Hence, the effect of the explanation as
above need not be considered at all.
87 In the view that we have taken above, we agree with
Mrs. Jeejeebhoy that the petitions have no merit. Rule is
discharged in each of them. There would be no order as to costs.
88 At this stage, in Writ Petition No. 8572 of 2015, a
request is made by the learned senior counsel appearing for the
petitioner that time to comply with the order of part payment
be extended by a period of six weeks. This request is opposed
by the respondents' counsel.
89 Having heard the learned counsel appearing for
both sides, we are of the view that interest of justice would be
served if the time to make payment is extended by a period of
six weeks from today. If it is made and compliance is reported,
the tribunal shall decide the appeal in accordance with law.
DR. SHALINI PHANSALKAR JOSHI, J. S.C. DHARMADHIKARI, J.
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