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M/s Shanti Fragrances v. Union of India

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M/s Shanti Fragrances v. Union of India

This case deals with the extent to which a rate of tax entry under the Delhi Sales Tax Act (1975) may conflict with an exemption entry.

Petitioners Arguments
That Gutka is ‘Tobacco’ for the purposes of this Act as established in Kothari Products . That the State cannot through a rate of tax section introduce an entry that limits the exemption provided to a commodity protected under the Third Schedule. That, while the Delhi Sales Tax Act defines tobacco as defined under the Central Excises and Salt Act, 1944 , definitions from future excise legislation ( Central Excise Tariff Act 1985 ) should be used to determine the legislative intent with regard to the scope of ‘tobacco’. Entry 2404.49 of the Central Excise Tariff Act includes Pan Masala containing tobacco/Gutka under the heading “Chewing Tobacco and preparations containing chewing Tobacco”, meaning that the definition of Tobacco had subsumed Gutka and Pan Masala.
Responders Arguments
When a good falls within the ambit of two taxing entries, one general and one specific, the good has to be treated like the specific entry for the purposes of taxation (citing Reliance Trading Company v. State of Kerala (2000) 119 STC 321 ). “Pan Masala and Gutka” being specific and Tobacco being general, “Pan Masala and Gutka” had to be given priority and since that is a First Schedule item, it is not exempt from tax. That the different sections of a taxation statute (the charging section, rate of tax section, and exemption section) are to be viewed as forming a taxation scheme. The introduction of an entry under the rate of tax section that infringes upon an exemption entry means that the legislature intends to withdraw the exemption previously provided and make those goods liable to tax (as held in Agra Belting Works ). The State was at liberty to levy tax in accordance with the Sales Tax Act, and only legislative competence in levying tax had to be examined.
Last Listed On
2022-09-19
Start Date
2017-09-21
End Date
2022-09-19
Card Stage Date
2022-09-19
Review Petition No
C.A. No. 8485/2011
Case Status
Archive
Bench Status
Constituted
Subject Matter
Constitution
Disposal Time
4 years, 11 months, 30 days

5 Judge Bench

Judgment delivered

Consider As Stage Of Pendency
false

Date of institution of case

Date of reference to 5 Judge Bench

Judgement pronounced

The appellants are manufacturers and dealers in the pan masala and gutka industry. ‘Tobacco’ is an item in the Third Schedule to the Delhi Sales Tax Act, 1975 making it exempt from tax under Section 7 (exemption section) of the Act. In 2000, through a notification, ‘‘Pan Masala and Gutka” was introduced into the First Schedule , which includes all items that are taxed at a particular rate under Section 4 (rate of tax section) of the Act. The appellants challenged the insertion of “Pan Masala and Gutka” into the First Schedule of the Delhi Sales Tax Act, 1975, before the Delhi High Court. They contested that Pan Masala and Gutka was ‘Tobacco’ within the scope of the Act and that the Legislature was barred from restricting the exemption provided to a particular good (here, tobacco) under the Third Schedule by inserting an entry into the First Schedule through the rate of tax section (Pan Masala and Gutka). On 05-11-2004, the Delhi High Court dismissed the writ petition. A Special Leave Petition was filed against the High Court’s judgement before the Supreme Court on 31-03-2005. During the pendency of the Special Leave Petition, several other petitions involving similar issues under the sales tax acts of different states were also tagged along with the Special Leave Petition. After several adjournments, arguments on the merits of the matter finally commenced before a Division Bench on 20-09-2017. On 21-09-2017, the Division Bench pronounced its judgment. It observed that there was a direct conflict between the judgments of two three judge benches in Kothari Products Ltd. v. Government of Andhra Pradesh [(2000) 9 SCC 263 ] and Commissioner, Sales Tax Uttar Pradesh v. M/s Agra Belting Works, Agra [(1987) 3 SCC 140 ]. The Division Bench referred the matter to a larger bench in line with judicial propriety. It also felt that the current system of precedent that only considered bench strength and not the number of judges concurring with a view created anomalies and had to be reconsidered, and referred the matter to a larger bench. Even though the Sales Tax Acts have been abolished after the introduction of the Goods and Services Tax in 2017, a final decision in the present matter is still needed. Firstly, the GST does not have retrospective application. Therefore, a decision is necessary to determine the tax liability of assesees for previous years. Secondly, the question of whether an item exempt from taxation can be taxed without first specifically withdrawing or revoking the exemption is still relevant, and needs to be conclusively decided.

Can a rate of tax entry under a sales tax statute be used to ‘eat into’ an exemption entry? What is the right position of law in light of the direct conflict between the judgements in Kothari Products Ltd. v. Government of Andhra Pradesh [(2000) 9 SCC 263 ] and Commissioner, Sales Tax Uttar Pradesh v. M/s Agra Belting Works, Agra [(1987) 3 SCC 140 ]? Whether the current system that determines precedential value solely based on the total bench strength of the case, disregarding dissenting opinions needs to be reconsidered in light of anomalies such as the view of four judges in a seven-judge bench (4:3) being allowed to overrule the unanimous view of a five-judge bench (as observed by Lokur J. in Supreme Court Advocates-on-Record Association v. Union of India [(2016) 5 SCC 1] ?

Sections 4 and 7 of Delhi Sales Tax Act, 1975 read with its First and Third Schedules.

The Court observed that the respondent’s contention that ‘exemption granted was revoked when the State legislature specifically inserted a good into the First Schedule to make it taxable’ was rejected by the Supreme Court previously in R eliance Trading Company v. State of Kerala (2000) 119 STC 321 ). The Court in that case stated that exemption from tax arises only when a good is eligible to be taxed. Thus, it would be unnecessary to specify goods in the Third Schedule, unless by reason of the rate of the tax section read with the First or Second Schedules, the goods were eligible for tax. The application of the doctrine of precedent, in this case, had to be examined as both Kothari Products and Agra Belting Works were judgments delivered by three-judge benches. B.C. Ray, J dissented in Agra Belting Works , meaning it was decided by a (2:1) majority, while the judgment in Kothari Products was unanimous. The question that arises is the extent of importance that is to be given to the number of judges holding a particular view (in cases of dissent), especially when one judgment is to be overruled by the other. This problem becomes apparent with larger benches and the Court observed this in light of Lokur, J’s view in Supreme Court Advocates-on-Record Association v. Union of India [(2016) 5 SCC 1] , where he observed that the unanimous (5:0) verdict in Sabhajit Tewary v. Union of India [(1975) 1 SCC 485] was overruled by a 7 judge bench with a (5:2) majority in Pradeep Kumar Biswas v. Indian Institute of Chemical Biology [(2002) 5 SCC 111] . This meant that on the whole, over the course of both the judgments, the view of 5 judges (the majority in Pradeep Kumar Biswas ) was deemed correct over the view of a total of 7 judges (the unanimous verdict in Sabhajit Tewary and the minority opinion in Pradeep Kumar Biswas ). Further, hypothetically if Sabhajit Tewary had been overruled by a 4:3 majority in Pradeep Kumar Biswas , it would still have been the accepted position of law despite the contrary having been upheld by a unanimous verdict of a five-judge bench. The Court referred the matter to the Constitution Bench to lay down the correct position of law considering the conflict between the decisions in Kothari Products and Agra Belting Works and lay down authoritatively, the extent to which the number of judges concurring with an opinion affects the accepted position of law to resolve anomalies like the ones mentioned above.

Kothari Products Ltd. v. Government of Andhra Pradesh [(2000) 9 SCC 263]

Commissioner, Sales Tax Uttar Pradesh v. M/s Agra Belting Works, Agra [(1987) 3 SCC 140]

M/s Trimurthi Fragrances Private Limited through its director Shri Pradeep Kumar Agrawal v. Government of NCT of Delhi through its Principal Secretary (Finance)

Date Of Institution Start
2006-07-21
Date Of Tagging
2007-11-23
Case No
C.A. No. 8486/2011
Date Of Tagging Link
https://drive.google.com/file/d/1i9IVSn1MXAyqXl6oKqZKimAm3DRQEkvn/view

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