IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 13..04..2009 C O R A M THE HONOURABLE MRS. JUSTICE PRABHA SRIDEVAN and THE HONOURABLE MR. JUSTICE K.K. SASIDHARAN W.P. Nos.4001 and 4604 to 4609 of 2002 Dharampal Satyapal Limited, No.2, Arian Soap Colony, Police Kandasamy Road, Ramanathapuram, Coimbatore. .. Petitioner in WP 4001/2002 Kothari Products Ltd., rep. by its Authorised representative Mr.S.Sekar ..Petitioner in WP 4604 to 4609/2002 versus 1. The Commercial Tax Officer, Trichy Road Circle, Coimbatore. ..1st Respondent in WP 4001/2002 2. The State of Tamil Nadu, Rep. by the Secretary to Government, Department of Commercial Taxes and Religious Endowments, Fort. St. George, Chennai-9. 3. The Union of India, Rep. by the Secretary, Department of Finance, Government of India,New Delhi. 4. The Tamil Nadu Taxation Special Tribunal, Rep. by its Registrar, Second Floor, Singaravelar Maaligai, Chennai-1. .. Respondents 2 to 4 in WP 4001/2002, Respondents 4 to 6 in WP Nos.4604,4605/02,4607, 4609/2002, Respondents 2 to 4 in WP 4606/2002, Respondents 3 to 5 in WP No.4608/2002. https://hcservices.ecourts.gov.in/hcservices/ 1. The Commercial Tax Officer, Woraiyur Asst. Circle, Tiruchirappalli. ..1st Respondent in WP 4606/2002 to 4609/02 2.The Prl.Commissioner and Commissioner of Commercial Taxes, Dept. of Commercial Taxes Govt. of T.N.Ezhilayam, Chennai -5. ..2nd Respondent in WP 4604, 4607,4608 and 4609/2002 3rd Respondent in W.P.4605/02 3.The Deputy Commissioner (CT) Trichy Division, Trichy. ..2nd Respondent in W.P. 4605/02, and 3rd Respondent in W.P. 4604/2002,4607/2002, and 4609/2002. For Petitioners : Mr. C. Natarajan, Senior Counsel for for Mr. N. Inbarajan in W.P. No.4001 of 2002 and for M/s. Narendra Sharma in W.P. Nos.4604 to 4609 of 2002. For Respondents : Mr. P.S. Raman Additional Advocate General for Mr. K. Radhakrishnan, Govt. Advocate (Taxes). in all Wps PRAYER : Writ Petitions filed under Article 226 of the Constitution of India praying WP.No.4001 of 2002 : Writ Petition praying (1) to issue a Writ of Certiorarified Mandamus directing the fourth respondent herein dated 18.01.2002 in OP.No.292/2001 declining to issue a declaration that the words "or tobacco" in Serial No.2 Part J of the first schedule to the Tamil Nadu Central Sales Tax Act, 1959, as ultravires section 14 and section 15 of the Central Sales Tax Act 1956, and Art. 286 of the Constitution of India and in any view repugnant to serial No.1 (IV)(d) of Part A to the third Schedule, r/w. Sec.8 of the Tamil Nadu Sales Tax Act, 1959 and the general scheme of levy of Additional duty of excise under Additional Duties of Excise (Goods of Special importance) Act, 1957, while directing the first and second respondents herein to forbear from recovering Sales Tax on Pan Masala containing tobacco under Serial No.2, Part J of the 1st Schedule to the Tamil Nadu General Sales Tax Act 1959, between 21.12.2000 and 28.02.2001 (in WP.4001/02) (2) to issue a Writ of Certiorari calling for the records pertaining to the common order passed by the Sixth and 5th respondent in OP.No.305/01, 304/01, 734/01, 301/01, 293/01 & 307/01 https://hcservices.ecourts.gov.in/hcservices/ respectively dated 18.01.2002 and quash the same as erroneous and illegal (In WP.Nos.4604/02 & 4609/02) O R D E R PRABHA SRIDEVAN, J. The petitioners are engaged in the manufacture and marketing of 'Pan Masala' containing tobacco under the brand name 'Pan Parag', 'Pan Zarda', 'Pan Parag Gutkha' and also 'Pan Masala' which does not contain tobacco. The first respondent passed provisional assessment orders for the months of October, November and December, 2000, levying tax under Entry-II, Part-J of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 ('TNGST Act' in short). The petitioners filed a revision before the Deputy Commissioner (C.T.). The revisional authority confirmed the provisional assessment orders. Aggrieved by that, the petitioners approached the Tamil Nadu Taxation Special Tribunal. The Tribunal dismissed all the original petitions filed by the petitioners. The petitioners also filed original petitions seeking the substantial relief of declaration that the word "or tobacco" in Sl. No.2, Part-J of the First Schedule to the TNGST Act is ultra vires Sections 14 and 15 of the Central Sales Tax Act, 1956 ('CST Act' in short) and Article 286 of the Constitution of India and is repugnant to Sl. No.1 (iv) (d) of Part-A to the Third Schedule read with Section 8 of the TNGST Act and the general scheme of levy of additional duty of excise under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ('ADE Act' in short). Aggrieved by the orders passed in the the said petitions, these writ petitions have been preferred. 2. We will briefly narrate the submissions of the writ petitioners which are dealt with elaborately in the written submissions filed by them. 'Gutkha', according to them, is a preparation which, apart from tobacco, contains betel nut, katechu, lime, flavours, permitted spices and saffron and tobacco is its essential character in relation to the dominant object of the user. The percentage of tobacco varies from 7% to 15%. They are aggrieved by the inclusion of the goods as 'Pan Masala' by whatever name called containing betel nuts, that is to say, nut of areca, catachu broken and perfumed and lime or menthol or sandal oils or cardamom or tobacco or any one or more of these ingredients at Sl. No.2 of Part-J of the First Schedule read with Section 3(2) of the TNGST Act. 3. It is admitted by the petitioners that the period of dispute is only from October, 2000 to February, 2001. According to them, if the goods fall within the description of Sl.No.1(iv)(d) of the Third Schedule of the TNGST Act, they are exempt from tax by virtue of Section 8. Once the goods are exempted by enumeration under the Third Schedule, Section 8 of the State Act operates, to exempt the https://hcservices.ecourts.gov.in/hcservices/ goods from levy under the State Act. The subsequent specification of the goods in the First Schedule will have no effect in view of the above exemption. The exemption under Section 8 of the TNGST Act is not subject to any restriction or condition as far as Sl. No.1 (iv)(d) of the Third Schedule is concerned. The definition under Sl. No.1(iv)(d) of the Third Schedule is not restricted to chewing tobacco, but includes preparations containing chewing tobacco and the word 'including' should be construed to enlarge the Entry to comprehend all preparations of chewing tobacco and not restricted to just chewing tobacco. 4. To support their case of inclusive definition, petitioners place reliance on (2008) 15 V.S.T. 256 (SC) [Ponds India Limited vs. Commissioner of Trade Tax, Lucknow] and A.I.R. 1972 S.C. 168 [The Commissioner of Income-Tax, Andhra Pradesh vs. Taj Mahal Hotel, Secunderabad]. It was submitted that the words 'that is to say' in Sl. No.1(iv) have been used so that no other kind of manufactured tobacco can be brought under Sl. No.1(iv), but that does not mean that the said words have any effect on the word 'including' in Sl. No.1(iv)(d) of the Third Schedule. That is, while the words 'that is to say' are restrictive, that cannot take away the effect of the inclusive definition in Sl. No.1(iv)(d). 5. Alternatively, it was submitted on behalf of the petitioners that by virtue of Article 286(3) of the Constitution the State of Tamil Nadu is subjected to restrictions and conditions as specified by Parliamentary Legislation with regard to inter alia tax on sale or purchase of goods declared to be of special in interstate law and commerce. Section 14(ix) of the CST Act which deals with such goods of special importance refers, inter alia, to items of manufactured tobacco. Section 15 spells out the restriction. The description of goods in Section 14 was aligned by the Central Act 26 of 1988 with the product description in the CET Act with effect from 16.3.1988. By Finance Act 2 of 1996, Chapter Heading 2404 of the Central Excise Tariff Act was re-cast and substituted, and chewing tobacco preparations earlier covered by sub-heading 2404.41 were substituted as 2404.40. Therefore, according to the petitioners, since their product contain tobacco it falling within the description 'chewing tobacco and preparations containing chewing tobacco', they would be goods of special importance, and the restriction under Section 15 of the CST Act comes into operation. Therefore, the State can neither tax such goods beyond one stage nor over 4% of the sale price during the relevant period. Therefore, according to the petitioners, since Section 14(ix) of the CST Act covers the goods under sub-heading 2404.41, now re-cast as sub- heading 2404.40, including 'Pan Masala' in Sl. No.2 of Part-J of the First Schedule to the State Act and taxing the goods at 40% is ultra vires Sections 14 and 15 of the CST Act. https://hcservices.ecourts.gov.in/hcservices/ 6. According to the petitioners, when the Finance Act, 1996 substituted the entire Heading 24.04 so that the substituted sub- heading reads as 'chewing tobacco and preparations containing chewing tobacco', these words should be read as if written in Sl. No.14(ix) of the CST Act and the enquiry has to be on the words written in Section 14(ix) of the CST Act as covered in sub-heading 2404.40. It is impermissible to refer to any other Heading such as Heading 21.06 on the ground it is more specific. According to them, when the Parliament by referential legislation assimilated sub- heading 2404.40, it is impermissible to engage oneself in an interpretative exercise of the entire Central Excise Tariff as to whether any other Heading excluded sub-heading 2404.40. According to the petitioners, the issue is covered by (2000) 119 S.T.C. 553 [Kothari Products Ltd. vs. Government of Andhra Pradesh]. According to them, since Gutkha consists of more than one material or substance, applying the General Rules for Interpretation of the Schedule to the CET Act ('Rules for Interpretation' in short) shall be applied, since the mixtures and composite goods are under issue, Heading 21.06 and sub-heading 2404.40 are equally specific. Alternatively, if Rule 3(a) is not attracted, then Rule 3(b) will be attracted as the essential character of Gutkha is that of chewing tobacco. Besides, since Rule 3(c) provides that the Heading which occurs last in numerical order should be preferred, Chapter Heading 2404 is to be preferred, since it occurs after Heading 21.06. The petitioners were originally paying excise duty on these goods as per the Central Excise Tariff Act, 1985 ('CET Act' in short) under Heading 21.06 upto 9.10.2000 and thereafter, they are paying central excise duty and additional excise duty under Sub-Heading 24.40, in accordance with the decision in 119 S.T.C. 553 (supra). 7. Therefore, according to the petitioners, the judgment in 119 S.T.C. 553 (supra) prohibits classification of the goods in question under Chapter 21 of the CET Act and therefore, one has to look only to Chapter 24 and the interpretative rules also point out only to sub-heading 2404.04. The word 'inclusive' would show that chewing tobacco by whatever name they are called, including khara masala, kimam, dokta, zarda, sukha and surti, would be classified under sub-heading 2404.41/2404.40 and therefore, the goods would be covered by the words 'chewing tobacco and preparations containing tobacco'. The words in the Third Schedule of the TNGST Act, by virtue of Section 8, show that the goods in question are exempt from tax and the inclusion thereof in the First Schedule cannot in any manner take away the exemption granted by Section 8. For this proposition, the learned senior counsel relied on (2006) 147 S.T.C. 211 (SC) [Reliance Trading Co. vs. State of Kerala] and (2008) 114 S.T.C. 559 (SC) [Fenoplast vs. State of A.P.]. If this is not accepted, then the goods are any way 'declared goods' as per Section 14 of the CST Act and there is a ceiling on tax on such declared goods as per Section 15. For all these reasons, the writ https://hcservices.ecourts.gov.in/hcservices/ petitioners pray that the impugned order of the Tribunal be quashed and the writ petitions be allowed. 8. In response, the learned Additional Advocate General submitted that the Department and the manufacturers had all along classified the goods under the Heading 21.06. That was the general understanding. It is the judgment in 119 S.T.C. 553 (supra) that catalysed this challenge. During the relevant period, Note-3 under Chapter 21 of the CET Act defined 'Pan Masala' as any preparation containing betel nuts and any one or more or other ingredients mentioned in the said note, which included tobacco and therefore, without any strained interpretative exercise, the product would fall under Chapter 21. The learned Additional Advocate General also referred to the "Rules of Interpretation" and submitted that when the goods answer the precise description in Heading 21.06, one need not go to Chapter 24 and if the goods in question fall in Chapter 21, they are not covered under Section 14(ix) of the CST Act nor under Entry 1(iv)(d) Part-A of the Third Schedule to the TNGST Act. He specifically referred to Act 14 of 2001 and the conclusion of the dispute with effect from 1.3.2001 which fortified the above construction. After 2001, Note-3 of Chapter 21 was substituted and it explained what is meant by the words 'Pan Masala' and while 'Pan Masala' in Chapter 21 was described as a preparation containing betel nuts and various other ingredients but not tobacco, in Chapter 24, Note-6 was specifically inserted, which defined 'Pan Masala' containing tobacco commonly known as Gutkha as any preparation which contained betel nut and tobacco and any one or other ingredients mentioned under Note-6. Therefore, the learned Additional Advocate General submitted that it is only in the year 2001, with effect from 1.3.2001, that 'Pan Masala' containing tobacco came to be classified under Chapter 24. Significantly, it may be noted that 'Pan Masala' containing tobacco has been assigned separate sub-Heading and not the same sub-headings chewing tobacco and preparations containing chewing tobacco assigned a distinct sub-Heading. Thus, the legislature has consciously not treated 'Pan Masala' containing tobacco termed as Gutkha by the petitioners, as a product of chewing tobacco. Therefore, it was submitted that if this construction is accepted, the other grounds of challenge become redundant. 9. With regard to the specific submission made by the petitioners that 119 S.T.C. 553 (supra) decides the issue, the learned Additional Advocate General submitted that in that case, what was dealt with was Gudaku, a tobacco product falling under sub- heading 2404.11 of the Central Excise Tariff Act as well as the ADE Act and that is not the case of the petitioners herein and that it was a decision rendered on an issue of fact and may not bind us. The learned Additional Advocate General also submitted that the words used in the Andhra Pradesh Government Sales Tax Act were different and all inclusive as compared to the TNGST Act and so, https://hcservices.ecourts.gov.in/hcservices/ that decision will not cover the issue on hand. He also relied on (2006) 144 S.T.C. 529 (Del) [Shanti Fragrances vs. Union of India] and (2006) 145 S.T.C. 211 (Del) [M.R. Tobacco Pvt. Ltd. vs. Union of India] which referred to the basis of differences existing between the entries in the APGST Act and the Delhi Act. Therefore, according to the learned Additional Advocate General, on the first ground, viz. whether the goods fall under Chapter 21.06 or 2404.41 / 40, the answer has to be the former. 10. Then the learned Additional Advocate General submitted that if this submission is not accepted, then it should be understood under Article 246 read with Entry 54, List-II, the State's power to levy sales tax on goods of special importance is not taken away. If the State does so, it would only deprive the State of the allocation from the collection of additional excise duty and therefore, the power of the State Legislature to levy such tax is not taken away. 11. As regards the construction of the word 'including' found in sub-heading 2404.41, it was submitted that the word 'including' in the present case is followed by the words 'preparations commonly known as' and therefore, the said word has to be understood and read as 'and' in the conjunctive sense and therefore, the preparations mentioned therein should be treated as exhaustive and it cannot be expanded beyond that. 12. Next, it was submitted that the general presumption is that all goods are taxable and the legislature merely enumerates the goods by description. Section 8 forms an exception to the general rule that all goods are taxable and therefore, if goods that are covered under Entry 1(iv)(d) of the Part-A, Third Schedule of the TNGST Act are introduced as a taxable entry under Entry-2, Part-J of the First Schedule, it would have the effect of withdrawal of the exemption. For this purpose, he relied on (1987) 66 S.T.C. 1 [Commissioner, Sales Tax, U.P. vs. Agra Belting Works]. It was submitted that the subsequent decisions in (2006) 147 S.T.C. 211 (supra) and (2008) 114 S.T.C. 559 (supra) do not refer to Agra Belting Works' case. It was also submitted that the words 'that is to say' found in Entry 114 should be understood to mean that no form of tobacco can be brought under Sl. No.1(iv) and if 'Gutkha' is 'Gudaku' following the judgment in 119 S.T.C. 553 (supra), then it will not be covered by any of the goods enumerated in Entry 1(iv), Part-A of the First Schedule. For all these reasons, the learned Additional Advocate General submitted that the writ petitions should be dismissed. 13. The questions that we have to answer are :- (a) Whether 'Pan Masala' containing tobacco commonly known as 'Gutkha' would fall under Chapter 21 of the CET Act, 1985 and more particularly under sub-Heading 2106.00 contained thereunder? or https://hcservices.ecourts.gov.in/hcservices/ (b) Whether 'Pan Masala' containing tobacco (Gutkha) answers the description contained in Chapter 24 more particularly in sub-heading 2404.41/2404.40 namely chewing tobacco and preparations including khara masala, kimam, dokta, zarda, sukha and surti, chewing tobacco and preparations containing chewing tobacco? If we hold that 'Pan Masala' containing tobacco commonly known as 'Gutkha' falls under Chapter 21 of the CET Act, then the writ petitions fail. If we hold that 'Pan Masala' containing tobacco commonly known as 'Gutkha' answers the description contained in Chapter 24, more particularly under sub-heading 2404.41 / 1404.40, then we have to answer the following questions : (a) Whether the State Legislature is competent to levy tax on the sale or purchase of goods declared to be of goods of special importance and subjected to the levy of additional excise duty under the ADE Act, 1957? (b) Whether the word 'including' found in Entry 1(iv)(d) Part-A, Third Schedule of the TNGST Act and also in sub-heading 2404.41 is to be considered as enlarging the meaning of 'chewing tobacco' and therefore, would have extending force so as to encompass 'Gutkha' as preparation of chewing tobacco? (c) The State Legislature being competent to levy sales tax on goods of special importance falling under ADE Act, 1957, whether inclusion of 'Pan Masala' containing tobacco as taxable goods under Section 3(2) read with Entry 2 Part-J of First Schedule of TNGST Act, 1959 would prevail over Section 8 read with Entry 1(iv)(d) Part-A of Third Schedule, assuming such goods fell within the description contained in Entry 1(iv)(d) Part-A of the Third Schedule? The case of the petitioners is that Gutkha is not commercially considered as 'Pan Masala' and therefore, as per 119 S.T.C. 553 (supra), these goods will not fall under sub-Heading 2106.00 and on the other hand, they would have to be classified under Chapter 24. 14. To understand the questions posed before us, we have to see the historical developments of the relevant entries in the relevant Acts, which have a bearing on the levy of sales tax/excise duty on 'Pan Masala' containing tobacco. The relevant Acts are the TNGST Act, the CST Act, the CET Act and the ADE Act. Section 14 of the CST Act declares certain goods to be of special importance. And Section 15 restricts the power of taxation on the said goods. Originally Section 14(ix) of the CST Act read thus :- "(ix) tobacco, as defined in Item No.4 of the First Schedule to the Central Excises and Sale Act, 1944 (1 of 1944) [*]" If we go to Item No.4, 'Tobacco' reads as follows : "4. Tobacco "Tobacco" means any form of Tobacco, whether cured or https://hcservices.ecourts.gov.in/hcservices/ uncured and whether manufactured or not and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth. ... II. Manufactured Tobacco ... (5) Chewing tobacco, including preparations commonly known as "Khara Masala", "Kimam", "Dokta", "Zarda", "Sukha" and "Surti"." Central Act 26 of 1988 substituted the words in Section 14(ix) with the following words with effect from 13.5.1988 : "14(ix). Unmanufactured tobacco and tobacco refuse covered under sub-Heading No.2401.00, cigars and cheroots of tobacco covered under Heading No.24.02, cigarettes and cigarillos of tobacco covered under the sub-Heading Nos.2403.11 and 2403.21, and other manufactured tobacco covered under sub-heading Nos.2404.41, 2404.50 and 2404.60 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)." The above amendment was made to Section 14 of the Central Act in order to align the description of the goods with the description in the CAT Act. This is clear from the Finance Bill, 1988. 15. We will now go to the CET Act. Heading 24.04 of the CET Act, on the date of its incorporation in the Central Act, i.e. on 13.5.1988 read as follows : ==================================================================== Heading No. Sub-Heading No. Description of goods -------------------------------------------------------------------- ... ... ... ... ... ... ... 2404.11 --- 'Gudaku' bearing a brand name 2404.12 --- 'Gudaku' not bearing a brand name 2404.13 --- Cut tobacco 2404.19 --- Other --- Hookah tobacco, whether or not containing tobacco substitutes in any portion : 2404.21 --- Bearing a brand name 2404.29 --- Other --- Biris 2404.31 --- In the manufacture of which any process has been conducted with the aid of machines operated with or without the aid of power 2404.39 --- Other --- Chewing tobacco, including preparations https://hcservices.ecourts.gov.in/hcservices/ commonly known as "Khara masala", "Kimam", "Dokta", "Zarda", "Sukha" and "Surti". 2404.41 --- Bearing a brand name 2404.49 --- Other --- Snuff; 2404.50 --- Snuff of tobacco 2404.90 --- Other ================================================================ The entry relating to "chewing tobacco" as on 1.3.1993 under the CET of India 1993-94 reads as follows : ================================================================ Heading Sub-Heading Description of goods Rate of duty No. No. -------------------------------------------------------------------- Basic Additional -------------------------------------------------------------------- Chewing tobacco including preparations commonly known as "Khara Masala", "Kimam", "Dokta", "Zarda", "Sukha" and "Surti". 24.04 2404.41 Bearing a brand name 25% 10% 2404.49 Other 'Nil' 'Nil' ================================================================= 16. By the Finance Act, 1995, 'Pan Masala' was brought under the Heading 21.06. In the year 1995, the IV Schedule was amended, and the relevant Clause (8) in Chapter XXI read as follows : "(8) in Chapter 21, – (i) for NOTE 3, the following NOTE shall be substituted, namely :- '3. In this Chapter, 'Pan Masala' means any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol'." Clause (10) in Chapter XXIV reads as follows : "(i) for NOTE 2, for the figures and word '24.02, 24.03 and 24.04', the figures and word '24.01, 24.02, 24.03 and 24.04' shall be substituted." Clause (9) in Chapter XXI reads as follows : "(i) for Heading Nos.21.06 and 21.07 and the entries relating thereto, the following shall be inserted, namely :- 21.06 2106.00 'Pan Masala' 50%" By Finance (No.2) Act, 1996, there was again a change and the same is reproduced hereunder : "(7) in Chapter 24, after NOTE 4, the following https://hcservices.ecourts.gov.in/hcservices/ NOTE shall be inserted, namely :- 5. In this Chapter, 'smoking mixtures for pipes and cigarettes' of sub-heading No.2404.10 does not cover 'Gudaku'." ..... "(iii) For Heading No.24.03 and the entries relating thereto, the following shall be substituted, namely :- ========================================================== Heading Sub-Heading Description of goods Rate of duty