Case Note & Summary
The dispute arose under the Maharashtra Value Added Tax Act, 2002 regarding the levy of VAT on pan masala containing tobacco (gutkha/mawa) for the financial year 2005-06. The petitioner, M/s. Ghodawat Energy Pvt. Ltd., a company engaged in manufacturing pan masala, claimed exemption from VAT on such products under Schedule Entry A-45 of the MVAT Act, which exempted goods covered by the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The petitioner paid additional duties of excise at 18% on these goods and contended they were exempt from VAT. However, the Deputy Commissioner of Sales Tax, Kolhapur, by assessment order dated 22.08.2014, disallowed the exemption, raising a demand of Rs.3,21,13,742. Aggrieved, the petitioner filed an appeal before the Joint Commissioner of Sales Tax (Appeals), who directed a part payment of Rs.1,60,39,180 as a condition for stay, vide order dated 22.09.2014. The petitioner's further appeal to the Maharashtra Sales Tax Tribunal was also unsuccessful; the Tribunal, by order dated 26.06.2015, upheld the disallowance relying on the Explanation inserted to Entry A-45 w.e.f. 01.02.2006, which excluded pan masala containing tobacco from the ambit of 'tobacco', and directed a part payment of Rs.1,41,93,875. The petitioner then approached the Bombay High Court under Article 226 of the Constitution, seeking quashing of the part payment orders and a declaration that the Explanation introduced by Notification dated 21.01.2006 was discriminatory and ultra vires Article 14. The petitioner also pointed out that the Taxation Laws (Amendment) Act, 2007, by omitting tobacco from the ADE Act, and the consequent amendment to Entry A-45 from 01.04.2007, indicated legislative intent that tobacco products were earlier covered. The State defended the Explanation and opposed the petitions, citing delay. The High Court heard arguments on the core questions: whether pan masala containing tobacco fell within the exemption, and whether the Explanation was constitutionally valid. The Court, after analyzing the legislative scheme and the purpose of the ADE Act, noted that the goods were subjected to additional excise duties and the State received its share, thus the exemption should apply. It held the Explanation invalid and discriminatory, quashed the part payment orders, and allowed the writ petitions, thereby restoring the exemption for the disputed period.
Headnote
A) Tax Law - VAT Exemption - Schedule Entry A-45 of MVAT Act, 2002 - Exemption for Goods under ADE Act, 1957 - The issue pertained to whether 'pan masala containing tobacco' qualifies as 'tobacco' under Schedule Entry A-45 of the MVAT Act and thus exempt from VAT when subjected to Additional Duties of Excise under the ADE Act, 1957 — Petitioners contended that such goods are described in the First Schedule to ADE Act and therefore exempt. (Paras 5-8, 19-24)
B) Tax Law - Interpretation of Explanation to Schedule Entry A-45 - Notification dated 21.01.2006 - Validity of Explanation Exclusion - The Explanation inserted w.e.f. 01.02.2006 declared that 'tobacco shall not include Pan Masala, that is to say, any preparation containing betel nuts and tobacco...' — Petitioners challenged this as discriminatory and contrary to the scheme of the MVAT Act and ADE Act, arguing that it denied exemption available to similar goods. (Paras 10, 17)
C) Constitutional Law - Article 14 - Discrimination - Equality before Law - The Explanation to Schedule Entry A-45 was challenged as ultra vires Article 14 of the Constitution on the ground that it arbitrarily excluded pan masala containing tobacco from the exemption, thereby imposing a higher tax burden without reasonable classification. (Paras 1(f)(i))
D) Tax Law - Assessment and Appeals - Sections 26(6B) and 26(6C) of MVAT Act, 2002 - Stay and Part Payment - The assessing authority disallowed exemption and raised demand; the appellate authority directed part payment as a condition for stay — Petitioners argued that the demand was without jurisdiction as the goods were exempt. (Paras 15-17)
Issue of Consideration
Whether pan masala containing tobacco (gutkha/mawa) qualifies for exemption from VAT under Schedule Entry A-45 of MVAT Act, 2002, and whether the Explanation inserted by Notification dated 21.01.2006 is valid, constitutional, and not ultra vires Article 14.
Law Points
- exemption under Schedule Entry A-45 of MVAT Act
- 2002 available to goods covered by ADE Act
- 1957
- pan masala containing tobacco is 'tobacco' within meaning of ADE Act
- explanation inserted by Notification dated 21.1.2006 ultra vires and discriminatory under Article 14
- no VAT demand on such goods when subject to additional duties of excise
Case Details
2016 LawText (BOM) (10) 45
Writ Petition No. 8572 of 2015 and Writ Petition No. 9265 of 2015
S.C. Dharmadhikari, Dr. Shalini Phansalkar-Joshi
Mr. V. Sridharan, Mr. C.B. Thakar, Mr. Rahul Thakkar, Mr. Girish Kala, Mr. Puneeth Ganapathy, Mrs. Naira Jeejeebhoy
M/s. Ghodawat Energy Pvt. Ltd.
The State of Maharashtra, The Commissioner of Sales Tax, The Deputy Commissioner of Sales Tax, The Joint Commissioner of Sales Tax (Appeals), The Maharashtra Sales Tax Tribunal
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Nature of Litigation
Writ petitions under Article 226 of the Constitution of India challenging assessment orders and demand of VAT on sale of pan masala containing tobacco (gutkha/mawa) and seeking exemption under Schedule Entry A-45 of MVAT Act, 2002, and striking down explanation inserted by notification as discriminatory.
Remedy Sought
Petitioner sought quashing of part payment orders dated 26.6.2015 and 22.8.2014, and striking down Clause (10) of Notification dated 21.1.2006 introducing Explanation to Schedule Entry A-45 as ultra vires Article 14.
Filing Reason
The Deputy Commissioner of Sales Tax (Respondent No.3) disallowed exemption claimed under Entry A-45 on pan masala containing tobacco on the ground that Explanation inserted w.e.f. 1.2.2006 excluded such products, raising VAT demand of Rs.3,21,13,742/- and later part payment order; appeals were heard but part payment was ordered.
Previous Decisions
Assessment order dated 22.8.2014 by Respondent No.3; stay application order dated 22.9.2014 by Respondent No.4 (Joint Commissioner of Sales Tax (Appeals)) directing part payment of Rs.1,60,39,180/-; second appeal order dated 26.6.2015 by Maharashtra Sales Tax Tribunal (Respondent No.5) in VAT Appeal No.971/2014 directing part payment of Rs.1,41,93,875/-.
Issues
Whether pan masala containing tobacco (gutkha/mawa) is entitled to exemption from VAT under Schedule Entry A-45 of MVAT Act, 2002?
Whether the Explanation inserted by Notification dated 21.1.2006 to Schedule Entry A-45 is discriminatory and ultra vires Article 14 of the Constitution?
Whether the part payment orders should be quashed?
Submissions/Arguments
The petitioner contended that goods covered by the ADE Act are exempt under Entry A-45, and pan masala containing tobacco is described in the First Schedule to ADE Act and thus exempt; they paid ADE at 18%, and the State receives its share from the ADE pool; the Explanation erroneously excludes such products and is discriminatory.
The petitioner further argued that the Taxation Laws (Amendment) Act, 2007 omitted tobacco from the ADE Act and Entry A-45, implying earlier inclusion, and that they have discharged VAT on such products from 1.4.2007 onwards.
The State defended the Explanation, asserting that pan masala containing tobacco is not 'tobacco' and the exemption was correctly denied; it also raised a preliminary objection regarding delay.
Judgment Excerpts
Entry 45 of the Schedule A to the MVAT Act, 2002, as introduced reads as under : Sr. No. Name of the Commodity Conditions & exceptions Rate of Tax (%) Date of effect 45 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.
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 ingredients, namely :- (i) Lime, and (ii) Kattha (Catechu) whether or not containing any other ingredient such as cardamom, copra and menthol.
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 taxes. This enabled States to levy VAT on tobacco with effect from 1st April, 2007.
Trade Circular 29T of 2007 dated 30th 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.
Procedural History
For FY 2005-06, petitioner filed returns claiming exemption on pan masala containing tobacco under Entry A-45. Assessment order dated 22.8.2014 by Respondent No.3 disallowed exemption and raised demand. Petitioner filed appeal before Respondent No.4, who passed stay order dated 22.9.2014 directing part payment. Petitioner appealed to Maharashtra Sales Tax Tribunal (Respondent No.5), which by order dated 26.6.2015 upheld the disallowance and directed part payment. Petitioner filed writ petitions under Article 226 in the Bombay High Court.
Acts & Sections
- Maharashtra Value Added Tax Act, 2002: Section 9(1), Schedule Entry A-45
- Additional Duties of Excise (Goods of Special Importance) Act, 1957: Section 3, First Schedule
- Central Excise Tariff Act, 1985: Tariff Heading 21069020, Tariff Heading 24039990, Chapter 24
- Constitution of India: Article 14, Article 226
- Taxation Laws (Amendment) Act, 2007: Section 10
- Indian Companies Act, 1956:
