HIGH COURT OF DELHI AT NEW DELHI Date of Decision: Tanuarvf ?.2006 v. UNION OF INDIA & Ors.

We have heard learned counsel for the parties and perused the record.

#4. Appearing for the petitioners, Mr.Gaur made a two fold submission in support of the challenge mounted in the petition. Firstly, it was contented on the authority of the judgment of the Supreme Court in Kothari Products Ltd. Vs. Govt. ofAP., (2000) 9 SCC 263 that since Gutka and tobacco are covered under The Additional Duties of Excise (Goods of Special Importance) Act, 1957, the same were exempt payment of any sales tax. Secondly, it was argued that additional excise duty payable under The Additional Duties of Excise (Goods of Special Importance) Act, 1957 being in lieu of sales tax, the levy of sales tax by the inclusion of Gutka in Schedule-I of the Act was unconstitutional in as much as the same was contrary to the spirit underlying in The Constitution (Eightieth Amendment) Act, 1999 apart from exposing the petitioner to double taxation which was legally impermissible.

#5. Mr. Misra, counsel appearing for the respondents, on the other hand, argued that challenge to the impugned 1 W.P.(C) Nos.22726/2005 & 22758/2005 3 Page 12 notification inserting Pan Masala and Gutka as Entry No.46 in the First Schedule to the Act had been examined and repelled by a Division Bench of this Court in Shanti Frasrances Vs. Union of India & Ors., [W.P.(C). No.11251/2004], disposed of on 5^ November,

#2004. He urged that a Bench of coordinate jurisdiction having upheld the notification, this Court was bound by the said decision, in the light whereof the first limb of the petitioner's challenge did not really arise for consideration. In so far as the alternative submission was concerned, it was argued by Mr.Misra that neither The Constitution (Eightieth Amendment) Act, 1999 nor The Additional Duties of Excise (Goods of Special Importance) Act, 1957 created any embargo for the competent State Legislature to levy a tax on the sale of even such goods as were otherwise covered by the provisions of earlier mentioned Act. He submitted that the source of power to levy additional excise duty was distinctly different from that under which the State Legislatures were competent to levy tax on the sale of goods. The Act, argued the learned counsel, gave to the Lt. Governor the power to grant or withdraw exemption by a suitable insertion or deletion of any Entry from the Schedule to the Act. In as much as the competent authority had withdrawn exemption earlier enjoyed by Gutka, by W.P.(C) Nos.22726/2005 & 22758/2005 4 Page 12 including the same in Schedule-I of the Act, it committed no constitutional impropriety leave alone any illegality to warrant interference by a writ court.

#6. In Shanti Fragrances's case (supra), this Court was examining constitutional validity impugned notification. Reliance was placed by the petitioners upon the decision of the Apex Court in Kothari Product's case in support of its contention that since tobacco included Gutka, the same w was exempt from the payment of sales tax. This Court, however, repelled that contention. Relying upon the decisions of the Supreme Court in Commissioner of Sales Tax. U.P. Vs. Agra Belting Works. (1987) 66 STC 1; Sales Tax Officer. Sector IX. Kanpur Vs. Darling Dairv Products and another. (1994) 94 STC 93; State of Bihar and another Vs. Krishna Kumar Kabra and another. (1998) 108 STC 1 and Reliance Trading Company Vs. State of Kerala. (2000) 119 STC 321 this Court held that it is open to the State to withdraw a general exemption by inclusion of entry in the Schedule enumerating goods the sale whereof would attract a tax. The ratio of the decision rendered by the Supreme Court in Kothari Product's was distinguished, keeping in view the provisions of the Delhi Sales Tax Act. Sitting in a coordinate jurisdiction, the said decision is binding on us, W.P.(C) Nos.22726/2005 & 22758/2005 5 Page 12 especially when the ground urged before us is the same as has already been examined and repelled, by this Court. Even otherwise, the argument advanced before us on behalf of the petitioners rests entirely on the decision of the Supreme Court in Kothari Product's case, in which case the petitioner had challenged introduction of Entry-194 in the First Schedule to Andhra Pradesh General Sales Tax Act, 1957. That Entry sought to tax Van Masala including Gutka. The contention advanced w before the Supreme Court was that the State of Andhra Pradesh was not competent to tax Gutka. Interpreting the provisions of Section 8 of the Andhra Pradesh General Sales Tax Act, 1957, the Schedules attached to the same and the provisions of The Additional Duties of Excise (Goods of Special Importance) Act, 1957, which refer to Gutka under the sub-heading "Other manufactured tobacco", the Court held: therefore, "Clearly, therefore, gutka is a tobacco that is covered by an entry in the First Schedule to the said Additional Duties of Excise Act and the branded manufacture Gutka, explanation State Sales Tax Act and, by the exemption thereof. could, by including gutka as a kind of pan masala In Entry 194 of It must, therefore, be held that the incusion of gutka appellants liable to tax thereunder. Is "goods" covered by the to the Fourth Schedule to the therefore, covered in Section 8 to the State Act not have been amended its First Schedule. The Schedule contained therefore, W.P.(C) Nos.22726/2005 & 22758/2005 6 Page 12 in the said Entry 194 in ttie manner in wtiicti is done is bad in iaw and is strucl< down. Tiie appeiiants benefits." consequential entitled

#7. The above makes it clear that insertion of Entry 194 was found to be impermissible because goods covered by the Explanation to the Fourth Schedule to the State Act were exempt under Section 8 from the payment of any tax on sales. That decision does not lend any assistance to the petitioners in the present case because Section 7 of the Act or Schedule-Ill referred to therein does not grant exemption to tobacco or Gutka depending on whether or not the goods in the Schedule are amenable to additional duties of excise under the provisions of The Additional Duties of Excise (Goods of Special Importance) Act, 1957. The Scheme of Section 8 of the Andhra Pradesh General Sales Tax Act and the Schedule to the same particularly in so far as exemption from payment of sales tax is concerned, is different from the Scheme underlying provisions of Section 7 and Schedules referred to therein of the Delhi Sales Tax Act. We have in that view no difficulty in repelling the first limb of the challenge urged before us on behalf of the petitioners.

#8. Coming then to the alternative submission urged before us, the same proceeds on the assumption that levy of an W.P.(C) Nos.22726/2005 & 22758/2005 7 Page 12 \Py additional excise duty under the provisions of The Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) does not leave any room for levying any sales tax on such of the goods as are exigible to such excise duty. The Statement of Objects and Reasons of Act 58 of 1957 runs thus: attributable the proceeds The distribution the pattern recommended to the States. of the additional "The object of the Bill is to impose additional duties of excise in replacement of the sales levied by the Union and States on sugar, tobacco and millmade textiles and to the net proceeds of these taxes, distribute to Union except territories, duties broadly proceeds by the follows Provision has Second Finance Commission. been made that the States which levy a tax 1, 1958 do not commodities in the distribution participate the net proceeds. Provision is also being made in the Bill for including these three goods in the category of goods declared to be of special importance in inter-state trade or commerce so that, following the imposition of uniform the rates of sales duties of excise on them, tax, April 1, 1958 to the restrictions in Section 15 of the Central Sales Tax Act, 1956." if levied by any State are subject after April purchase ^

#9. It is evident from the above that the object of the Act was to substitute additional duties of excise in place of sales tax in so far as the goods referred to in the Statement of Objects and Reasons were concerned." This did not, however, prevent State Legislatures from levying taxes on the sale or purchase of the commodities which were exigible to additional excise duty. W.P.(C) Nos.22726/2005 & 22758/2005 8 Page 12 That position was made clear by the Supreme Court M/sMahalakshmi Oil Mills Vs. State ofAndhra Pradesh . (1989) 1 see 164, where their Lordships have, after referring to the objects of the Act extracted above, observed: W'' if they wished, the Act was the additional the object of "In short, substitute additional duties of excise in piace tax so far as these goods were of saies concerned, Since the State iegisiatures were ' to ievy taxes on the at iiberty, sale or purchase of these commodities, excise Act provided only among such duties will be distributed ievy a tax on the sale or States as did not Also, by purchase of these commodities. in the category of including these goods importance goods declared to be of special legislation ensured that, if any State levied sales tax in respect of these commodities, to the restrictions such levy was Sales Tax Act, contained subject the Central commerce, Inter-State

1956." ^

#10. To the same effect is the decisionof the Supreme Court in State of Kerela Vs. Attesse. (1989) 72 STC 1, where the Court observed: "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 proceeds of the additional duty levied. Whether it should impose sales tax on an item of declared goods in section 15 of the limited by the restrictions Central Sales Tax Act, 1956 and at the risk of losing a share in the additional excise duty levied in respect of this very item is for the State to determine."

#11. We also refer to State of Bihar Vs. Bihar Chamber of W.P.(C) Nos.22726/2005& 22758/2005 9 Page 13 y-J % •<yy Commerce. (1996) 103 STC 1, where the Supreme Court has authoritatively set the controversy at rest in the followingwords: schedule the proceeds "By enacting the Additional Duties of Excise (Goods of Special Importance) Act Parliament levies additional duties of excise and distributes among the States a part of provided the States do not levy taxes on sale or purchase commodities. Parliament has also provided the consequence that follows if any State levies tax on sale or purchase of schedule happens is that the State will be deprived of its share in the proceeds of additional duties of excise for subject to the power of the Central Government to direct otherwise, and Parliament could not, and did not, prohibit any State from making any law levying any tax which a State can levy by virtue of the entries in List II." financial year. Even this commodities;

#12. In the face of the above, there is no gainsaying that the levy of additional excise duties in the category of goods declared to be of special importance in inter-State trade or commerce, did not prevent the State Legislatures from levying a sales tax in support of the very same commodities subject to the restrictions contained in the Central Act. All that the levy of any such sales tax would mean is that the additional excise duty levied on such commodities by the Central Government will not be distributed among such of the States as had levied such a sales tax. That, however, is a matter concerning distribution of the proceeds of additional duties, which does not affect W.P.(C)Nos.22726/2005& 22758/2005 10Page 13 0 legislative competence of the State Legislatures to levy a tax on the sale of such goods. There is nothing even in the Constitution (Eightieth Amendment) Act, 1999 to suggest that levy of additional excise duties on sale of tobacco, cotton or sugar would dis-entitle the competent State Legislatures to levy a tax on sales even when such legislatures are ready to forego share of revenue collected towards additional excise duties. 'H

#13. Para 3 of the Statement of Objects and Reasons of The Constitution (Eightieth Amendment) Act, 1999 upon which the petitioners places heavy reliance reads thus: levied cesses of all Central duty, "In addition, tliree per cent sinare in tine gross proceeds taxes and duties (excluding excise medicinal/toilet preparations. Central Sales tax, Tax, Consignment specific purpose under any law made by Parliament and Surcharge) is to be assigned to the States in lieu of their existing share in Additional Excise Duties in lieu of Sales Tax on tobacco, cotton and sugar. The commission cotton and had proposed that sugar may continue to be exempt from Sales Tax and the Additional Excise Duties in lieu of Sales Tax on these items may be merged with the Basic Excise Duties." tobacco,

#14. It is, in our view, difficult to see how the legislative competence of the States can be determined leave alone curtailed on the basis of the above paragraph appearing in the W.P.(C)Nos.22726/2005& 22758/2005 11 Page 13 vh. Statement of Objects and Reasons. Given the history of the legislation levying additional excise duties interpretation placed upon the provisions of the Act by the Supreme Court in Mahalakshmi Oil Mills' case (supra),the words appearing in the Statement of Objects and Reasons cannot be read out of context or understood to mean as though The Constitution (Eightieth Amendment) Act, 1999 had taken away the power of the State Legislatures to levy a tax on the sale t the goods exigible to additional excise duties. When understood in proper context, levy of additional excise duties in lieu of sales tax on tobacco, cotton and sugar may be an expression relevant only in cases the States have not levied any sales tax on the sale of such goods, for in that event the States concerned may be entitled to an appropriate share out of the collection in the Central kitty out of the additional excise duties.

#15. In the light of what is stated above, the challenge to the impugned notification fails and the petition is to that extent dismissed. This would not however, prevent the petitioners from assailing the orders of re-assessment on merits in appropriate appeals as we consider it unnecessary to examine the validity of the re-assessment orders in view of the equally efficacious alternative remedy available to them. W.P.(C) Nos.22726/2005 & 22758/2005 12 Page 13

#16. In the result, these writ petitions fail and are hereby dismissed with liberty to the petitioners to assail the impugned re-assessment orders by way of an appeal before appropriate appellate authority, if so advised.

#17. No costs. T.S.THAKUM

5.N. CiMTURVEDirr r January2006 55 W.P.(C) Nos.22726/2005 & 22758/2005 13 Page 13