DATE OF JUDGEMENT:
4th January 2022
Justice S. Sunil Dutt Yadav
Petitioners (s): M.s.V.S. Products
1. Union of India
2. The Commissioner of Central Tax
In the present case, the High Court of Karnataka clubbed together a bunch of writ petitions to decide on the issue as to whether GST and excise duty can simultaneously be levied on tobacco and tobacco products under Article 246 and Article 246 A respectively.
1. The petitioners in the present case are manufacturers of Tobacco and Tobacco products. The petitioners are also registered under Rule 9 of Central Excise Regulation Rules 2002 (hereinafter referred to as “2002 Rules” for brevity) and Rule 10(1) of Central Goods and Services Tax Rules 2017 (hereinafter referred to as “CGST Rules” for brevity).
2. The petitioners had filed multiple writ petitions in the High Court of Karnataka seeking multiple reliefs on the subject matter of simultaneous levy of GST under Article 246A of the constitution and levy of basic excise duty and National Calamity Contingent Duty (NCCD) under Article 246 of the Constitution on tobacco and tobacco products. The Court had clubbed together all the petitions for adjudication.
3. Currently, except for alcoholic beverages for human consumption, petroleum and petroleum products, stamp duty tobacco and tobacco products, and opium, every good is liable only to GST under Article 246A.
4. Tobacco and tobacco products are liable to multiple taxes:
a) GST (Article 246A)
b) Compensation Cess (Article 270)
c) National Calamity Contingent Duty (Article 271)
d) Basic Excise duty (Entry 84 List 1 under Article 246)
5. Arguments put forth by the counsel for petitioners:
a) Explaining the significance of the Constitutional 101st Amendment Act which introduced National Goods and Services Tax (GST), the petitioners stated that the purpose of the said amendment act is to avoid cascading effect of taxes and provide a common national market for goods and services. GST subsumes multiple taxes levied on the supply chain i.e. from manufacture or import till retail, argued by the petitioners.
b) The counsel for the petitioners argued that the provisions of Article 246A are sui generis in nature and overrides the taxing power conferred to the legislature under Article 246 in the light of the non-obstante clause present in Clause 1 of Article 246.
c) The counsel for the petitioners argued that a levy of surcharge to sustain NCCD can’t be justified as surcharge is only applicable on goods exempted for GST, but tobacco and tobacco products fall within the ambit of GST under Article 246A.
d) The counsel for the petitioners argued that levy of any surcharge/tax can only be done after a recommendation from the GST council which will also determine its apportionment between the Union and the States. However, the levy of NCCD and basic excise duty is exclusively retained by the Union and not even subjected to apportionment between the Union and the states, hence, it is violative of the constitution procedure.
e) Moreover, the continuation of levy of basic excise duty and NCCD on the mere mention of tobacco and tobacco products in Entry 84 of Union List is violative of Article 246, Article 246A, Article 265, Article 269A, Article 270, Article 271, and Article 279A.
f) The levy of basic excise duty and NCCD also violates Article 14 of the constitution as it fails the twin test specified for the reasonable classification i.e. classification must be made based on ‘intelligible differentia’ and the intelligible differentia must have a rational nexus with the object sought to be achieved by the legal provision. In the pre-GST era, every good was subjected to indirect taxes under two taxable events i.e. at the stage of manufacture and the stage of the sale. After the introduction of the 101st Amendment Act, only tobacco and tobacco products are subjected to indirect taxes (basic excise duty) in addition to GST. The Counsel for the petitioners contended that this singling out of tobacco and tobacco products is hostile and discriminatory treatment.
6. Arguments put forth by the counsel for respondents:
a) The counsel for the respondents referred to the judgment in the case of Union of India and Ors. V. VKC Footsteps where the Supreme Court observed that with the enactment of 101st constitutional amendment act, Entry 84 of Union List has been restructured to incorporate basic excise duty on tobacco and tobacco products.
b) The counsel for the respondents argued that the Courts must be careful when interpreting the provisions of the GST regime as the Parliament makes balances to accommodate the interest of the states and in the area of GST law judicial interpretation can’t be ahead of policymaking.
c) The Counsel for the respondents argued that the constitutional scheme can’t be questioned as to whether certain products are liable to GST or other levies/taxes when there is no express bar on the power to institute such provisions. Moreover, the provisions of Article 246 and Article 246A function independently.
d) The Counsel for the respondents further argued that the Parliament retains the power to levy basic excise duty under Article 246 as the same is levied for taxable events of ‘manufacture’ while GST is levied for taxable events of ‘supply’. Accordingly, the levy of excise duty under Entry 84 of Union List read with Article 246 is independent and can co-exist without influencing or being influenced by the GST on the same goods i.e., tobacco and tobacco products under Article 246A.
1. Whether after coming into force of the Constitution (101st Amendment) Act, with effect from 01.07.2017 the levy of basic excise duty and NCCD is constitutionally valid?
2. Whether such simultaneous levies would be consistent with purposive and harmonious construction of the Constitution?
1. After considering the arguments of both the parties, the Court held that the words ‘notwithstanding anything contained in Article 246’ ought to be construed having the effect of merely clarifying that despite power under Article 246, Article 246A could be exercised and that Article 246 would not be an impediment to the operation of 246A. The Court placed reliance on the judgment in the case of South India Corporation Pvt. ltd. V. Secretary, Board of Revenue, Trivandrum and Another.
2. The Court further held that the Legislature enjoys a wide latitude to decide on the methodology of revenue generation and the courts should not rush and must tread carefully while dealing with legislation based on Fiscal Policy. Further, in the process of achieving the ultimate goal as envisaged while introducing the GST the continuance of levies under the previous legislations unless barred ought to be permitted as being competent vis à-vis available source of power which cannot be defeated by resorting to the argument based on objects of GST as contained in the Objects Clause.
3. On the question as to whether levy of basic duty and NCCD is violative of Article 14 of the Indian Constitution. The Court referred to the judgment in the case of Commissioner Urban Tax V. Buckingham and Carnatic Company Ltd. where the apex court held that selecting objects to the tax, determining the quantum of tax, legislating conditions for the levy and the socio-economic goals which: a tax must achieve are matters of legislative policy and these matters have been entrusted to the Legislature and not to the Court.
4. The Court also noted that the levy of excise duty is also for revenue generation and the choice of the category of goods for the purpose of revenue generation cannot ipso-facto be a ground of judicial review and something more is required such as hostile discrimination and singling out a particular category of goods. The choice of the category of goods as in the present case may also be influenced by the objective of discouraging consumption and accordingly the choice of the category of goods for the purpose of revenue generation cannot be held to be arbitrary.
5. The Court consequently dismissed all the petitions.
The High Court of Karnataka in the present case clarified that the sources of power under Articles 246A (pertaining to levy of GST) and 246 are mutually exclusive and could be simultaneously exercised. The Court also touched upon principles of morality w.r.t to trade of tobacco and tobacco products and how they can be subjected to extra taxes to avoid their consumption.
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