M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRI PRADEEP KUMAR AGRAWAL versus GOVT. OF N.C.T. OF DELHI THROUGH ITS PRINCIPAL SECRETARY (FINANCE) AND ORS. on 4 May 2023

[2023] 7 S.C.R.

AM/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITSDIRECTOR SHRI PRADEEP KUMAR AGRAWAL

v.

GOVT. OF N.C.T. OF DELHI THROUGH ITS PRINCIPALSECRETARY (FINANCE) AND ORS.

B

(Civil Appeal No. 8486 of 2011)

MAY 04, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Central Sales Tax Act, 1956 – ss.14, 15 – Finance Act, 1988C– Central Excise Tariff Act, 1985 – Chapter 21, 24 of the Schedule– Additional Duties of Excise (Goods of Special Importance) Act,1957 – Finance Act, 2001 – Delhi Sales Tax Act, 1975 – TamilNadu General Sales Tax Act, 1959 – Uttar Pradesh Trade Tax Act,1948 – Taxability of pan masala or gutka/gutkha under the aforesaidDState enactments – Whether pan masala was an exempted item, being“tobacco” – Held: The holding in Trimurti Fragrances (P) Ltd casethat there is no conflict between the Agra Belting Works line of cases,and the Kothari Products Ltd. line of cases, concludes the questionw.r.t the efficacy/validity of notifications introducing as entries in aSchedule(s) and subjecting them to tax, when those articles are partEof the statute or are exempted from taxation – Assessees’ contentionsfail on this point – Further, the CET Act itself made a distinctionbetween pan masala, whether it contained tobacco or not and allforms of tobacco – Right from 1995, the distinction in the CET Actbetween pan masala (Chapter 21) and tobacco (Chapter 24) hadFbeen made – The definition of pan masala also clarified that despiteone of its ingredients being tobacco, it would nevertheless be aseparate article – Till 2001, “Pan masala” and chewing tobaccoreceived different treatment – They are not interchangeable orsynonymous expressions – Entry 2404 refers to chewing tobacco“including preparations commonly known as “Khara Masala”,G“Kimam”, “Dokta”, “Zarda”, “Sukha” and “Surti”” – Gudaku and snuffare dealt with under a separate heading – The effect of inclusion ofpan masala with tobacco in Chapter 24 and simultaneously thatproduct’s exclusion from Chapter 21, as well as imposition of ADEwith effect from 2001, on ‘pan masala containing tobacco’ meantthat the product (i.e. pan masala without tobacco) went out for theH

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE)

first time of the reach of State sales tax – All along, goods andproducts described as pan masala and gutkha were included inChapter 21 – Therefore, till 2001 and the introduction of ADE, thesetwo products were covered by local or Sales tax levies – Before2001, pan masala and gutkha fell within Chapter 21, as pan masala,regardless of whether they contained tobacco – Goods classifiableunder Chapter 24 i.e. tobacco items were more general, also theydid not include pan masala – Subsequent changes made introducing2404.40 in the CET Act do not affect or change the CST Act – Thus,gutkha and pan masala are not covered under sub-heading 2404.40so far as CST Act is concerned – Thus, the arguments of theassessees that the rate of local tax cannot exceed the limit underthe CST Act, rejected.

Disposing of the appeals, the Court

Conclusion

Disposing of the appeals, the Court

HELD: 1.1 At the relevant time, ‘Pan Masala’ was describedas a preparation containing betel nuts and any one or more otheringredients such as lime, katha, katechu, cardamom, copra,menthol and tobacco. This is the definition of Pan Masala underthe CET Act which continued till 1995. Heading 21.06 covered‘Pan Masala’ containing “lime, katha, katechu, cardamom, copra,menthol and tobacco” or any one or more of these ingredients.Chapter 24 dealt with tobacco and manufactured tobaccosubstitutes and the relevant sub-heading at that time was 2404.41which deals with chewing tobacco, including preparationscommonly known as khara masala, kimam, dokta, zarda, sukhaand surti. Parliament Act 22 of 1995, substituted Note-3 toChapter 21 of the CET Act. “Pan Masala” was described as “anypreparation containing betel nuts and any one or more of thefollowing ingredients, viz., lime, katha, katechu or tobacco,whether or not containing any other ingredients such ascardamom, copra and menthol”. The primary ingredient of panmasala therefore, is betel nut, which could be mixed with otheringredients in combination or in isolation. This position prevailedas on 01.03.1988. In 1995, the definition underwent a change.Betel nuts remained the essential ingredient along with “lime,katha or tobacco” together, or separately. Whether the productcontained cardamom, copra, and menthol or not was irrelevant:

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Ayet one of the three ingredients (lime, katha and tobacco), had tobe found in the preparation known as ‘pan masala’. By ParliamentAct 33 of 1996, the description to Chapter Heading 24.04 andsub-headings under it were re-numbered. The description ofgoods was reclassified. There was no change in Chapter 21;Heading 21.06 continued to be only ‘pan masala’. That changedBwith effect from 01.03.2001, through Note-3. Entry No. 2 of Part-J in the First Schedule to the ADE Act is similar to sub-heading2404.49 - as amended from 01.03.2001. As a result, additionalexcise duty could be imposed on ‘’Pan Masala containingtobacco”.[Paras 46, 47 and 49][1070-G-H; 1071-B-D; 1072-C-CD]

1.2 As far as the first point argued by the appellants areconcerned, which is, whether in a state law which contains twoprovisions: one which taxes entries, and another which exemptsarticles from levy (the latter being listed separately, in a notification, Dor a schedule to the enactment itself), the inclusion, or insertioninto the list or schedule of articles that can be taxed (like Section4 of the DST Act) without amending the subsisting notificationthat excludes levy (as under Section 7 DST) would the levy fail?There was apparent conflict between two lines of judgments ofthis court i.e., Radheshyam Gudakhu Factory and Kothari ProductsELtd. on the one hand, and Dealing Dairy Products, Krishna KutharKabra and Agra Belting Works on the other hand. This court, inthe latter three judgments held that notification introducing anentry and subjecting it to levy, when previously, it was exempt inanother part of the taxing statute, the intention was to withdrawFthe exemption and make the sale leviable to tax at the rateprescribed in the later notification. The court held it to beunnecessary that “a specific or separate notification withdrawingor revoking the notification should be issued”. This conflict wasreferred to a larger bench of five judges, in Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi (a case, which is part of the presentGbatch). The holding, that there is no conflict between the AgraBelting Works line of cases, and the Kothari Products Ltd. line ofcases, therefore, concludes the question urged with respect toefficacy or validity of notifications introducing as entries in aschedule(s) and subjecting them to tax, when those articles areH

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE)

part of the statute or are exempted from taxation. The assessees’contentions therefore, fail on this point. [Paras 53-55][1074-G-H; 1075-A-C]

Trimurti Fragrances (P) Ltd v. Govt of NCT of Delhi[2022] 15 SCR 516 – followed.

State of Orissa v. Radheshyam Gudakhu Factory (2018)11 SCC 505; Commissioner, Sales Tax, U.P. v. AgraBelting Works [1987] 3 SCR 93; Sale Tax Officer, SectorIX, Kanpur v. Dealing Dairy Products & Anr (1994) 2Supp SCC 639; State of Bihar v. Krishna Kuthar Kabra(1997) 9 SCC 763 – referred to.

2. Pan masala was expressly mentioned in Chapter 21 forthe first time, in 1995 in the CET Act. Note 3 defined ‘Pan Masala’as “any preparation containing betel nuts and any one or more ofthe following ingredients, namely lime, katha (catechu) and tobacco,whether or not containing any other ingredients”. However, at thesame time, Chapter 24 contained a specific entry “tobacco” whichenumerated tobacco, manufactured tobacco, substitutes etc. Therelevant sub-heading at that time was 2404.41 which enumeratedchewing tobacco, including preparations commonly known askhara masala, kimam, dokta, zarda, sukha and surti. Thus, theCET Act itself made a distinction between pan masala - whetherit contained tobacco, or not, and all forms of tobacco. Right from1995, the distinction in the CET Act between pan masala (Chapter21) and tobacco (Chapter 24), had been made. The definition ofpan masala also clarified that despite one of its ingredients beingtobacco, it would nevertheless be a separate article. Throughout(till 2001), “Pan masala” and chewing tobacco have receiveddifferent treatment. They are not interchangeable or synonymousexpressions. Entry 2404 refers to chewing tobacco “includingpreparations commonly known as “Khara Masala”, “Kimam”,“Dokta”, “Zarda”, “Sukha” and “Surti””. Gudaku and snuff aredealt with under a separate heading. The effect of inclusion ofpan masala with tobacco in Chapter 24 and simultaneously thatproduct’s exclusion from Chapter 21, as well as imposition ofADE with effect from 2001, on ‘pan masala containing tobacco’meant that the product (i.e. pan masala without tobacco) wentout, for the first time, of the reach of state sales tax. All along,

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Agoods and products described as pan masala and gutkha, wereincluded in Chapter 21. The conclusion therefore, is that till 2001,and the introduction of ADE, these two products were coveredby local or sales tax levies. On a plain application of theinterpretive rules, especially Rule 3(a) it is clear that the headingwhich provides the most accurate description has to be followed.BIn the present case, there is no doubt, that before 2001, panmasala and gutkha fell within Chapter 21, as pan masala,regardless of whether they contained tobacco. Goods classifiableunder Chapter 24, i.e. tobacco items were more general; alsothey did not include pan masala. As regards the question of theCrate of tax, in view of the restrictions under Section 15 CST Act,neither gutkha nor pan masala were “declared goods” underSection 14 of the CST Act. The amendment to the CET Act didnot become part of Section 14(ix). The goods under the relevantsub-headings of the CET Act were absent in the list of declaredgoods of the CST Act; they were not part of the provisionsDintroduced to the Finance Act, 1988. Therefore, the subsequentchanges made introducing 2404.40 in the CET Act do not affector change the CST Act. Consequently gutkha and pan masalaare not covered under sub-heading 2404.40 so far as CST Act isconcerned. Resultantly the arguments of the assessees that theErate of local tax, cannot exceed the limit under the CST Act, arerejected as unmerited. [Paras 56, 62, 63][1076-B-D; 1078-A-D;1080-D-G]

Pioneer Land & Urban Infrastructure v. Union of India[2019] 10 SCR 381; Kothari Products Ltd. v.FGovernment of A.P (2000) 9 SCC 263; MahalakshmiOil Mills v. State of Andhra Pradesh [1988] 2 SupplSCR 1088; P. Kasilingam v. PSG College of Technology[1995] 2 SCR 1061; Collector of Central Excise Nagpurv. Simplex Mills Co. Ltd. [2005] 2 SCR 441; Tata SkyLtd. v. State of Madhya Pradesh [2013] 2 SCR 849;GReliance Trading Company v. State of Kerala (2011)15 SCC 762; Narottamdas v. State of Madhya Pradesh& Ors. [1964] 7 SCR 820; Girnar Traders (3) v. Stateof Maharashtra & Ors. [2011] 3 SCR 1; Pappu Sweetsand Biscuits v. Commissioner of Trade Tax, U.P, H

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE)

Lucknow [1998] 2 Suppl. SCR 119; Madhya Pradeshv. M.V. Narsimhan [1976] 1 SCR 6; NagpurImprovement Trust v. Vasantrao [2002] 2 Supp SCR 636;U.P. Avas Evam Vikas Parishad v. Jainul Islam & Anr[1998] 1 SCR 254 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8486of 2011.

From the Judgment and Order dated 05.04.2006 of the High Courtof Delhi at New Delhi in Writ Petition (C) No. 2925 of 2005.

With

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ACivil Appeal Nos. 8485, 8487, 8488, 8491-8494, 8495, 8496-8501,8502 of 2011, 8617, 10374-10379 of 2014 and 289 of 2023.

Dhruv Agrawal, Sr. Adv., Madhav Bhatia, Aditya Pandey,Ms. Bharti Tyagi, Pawanshree Agrawal, Ms. Shubhangi Negi, Mrs.Prabha Swami, Shwetank Sailakwal, Nishit Agrawal, Kanishk Mittal,BMs. Vanya, Zaid Raza, Vipin Kumar Jai, G. Prakash, Jishnu M L, Mrs.Priyanka Prakash, Nalin Talwar, Praveen Kumar, Ms. Sunaina Kumar,Advs. for the Appellant.

R Venkataramani, AG, N. Venkatraman, A.S.G., Arijit Prasad,R K Raizada, K. Radha Krishnan, Sr. Advs., Mukesh Kumar Maroria,CRupesh Kumar, Kanu Agarwal, V. Chandra Shekhra Bharathi, H.R.Rao, Zoheb Hussain, H. Raghvendra Bajaj, Ms. Amrita Vijay Kumar,Vikas Bansal, M. Yogesh Kanna, Bhakti Vardhan Singh, V. M. Vishnu,Ankit, Sabarish Subramanian, Vishnu Unnikrishnan, Ms. Shivani Jena,Naman Dwivedi, P. Shankar, R. Nedumaran, Gurmeet Singh Makker,Ms. Kannu Agarwaal, Arijit Prasad, Ms. V.C. Bharathi, H.R. Rao, ZohebDHussain, Advs. for the Respondents.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. This judgment will dispose of appeals arising from judgmentsEof three High Courts, on the question of taxability of pan masala orgutka/gutkha[1], under state enactments. The appellants unsuccessfullyargued that state legislatures were not empowered to levy sales tax onthose articles, in view of the provision in the Constitution enabling theUnion to levy additional duties of excise, and further that in any case, theFrate of state tax cannot exceed the limit prescribed by the Central SalesTax Act, 1956.

Brief Facts

2. The relevant central enactments are the Central Sales TaxAct, 1956 (hereafter “CST Act”), the Central Excise Tariff Act, 1985G(hereafter “CET Act”), and the Additional Duties of Excise (Goods ofSpecial Importance) Act, 1957 (hereafter “ADE Act”). The stateenactments in question are the Delhi Sales Tax Act, 1975 (hereafter 1 Which is spelt differently in regional contexts as ‘gutka’ or ‘gutkha’ or ‘guhtka’, ForHconvenience, this is hereafter referred to uniformly as ‘gutkha’.

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

“DST Act”); Tamil Nadu General Sales Tax Act, 1959 (hereafter“TNGST Act”) and the Uttar Pradesh Trade Tax Act, 1948 (hereafter“UPTT Act”).

3. Section 14 of the CST Act declares certain goods to be ofspecial importance; and Section 15 restricts the power of taxation on thesaid goods. Originally Section 14(ix) of the CST Act read as follows:

“(ix) tobacco, as defined in Item No. 4 of the First Scheduleto the Central Excises and Sale Act, 1944 (1 of 1944)”

Entry 4 of the CET Act, which defines ‘tobacco’, reads as follows:

“4. Tobacco

“Tobacco” means any form of Tobacco, whether cured oruncured and whether manufactured or not and includes theleaf, stalks and stems of the tobacco plant, but does notinclude any part of a tobacco plant while still attached to theearth.

...

II. Manufactured Tobacco

...

(5) Chewing tobacco, including preparations commonlyknown as “Khara Masala”, “Kimam”, “Dokta”, “Zarda”,“Sukha” and “Surti”.”

4. The Finance Act, 1988 (Central Act No. 26/1988) substitutedthe expressions in Section 14(ix) of the CST Act, with the followingwords, w.e.f. 13.05.1988:

“14(ix). Unmanufactured tobacco and tobacco refuse coveredunder sub-Heading No. 2401.00, cigars and cheroots oftobacco covered under Heading No. 24.02, cigarettes andcigarillos of tobacco covered under the sub-Heading Nos.2403.11 and 2403.21, and other manufactured tobaccocovered under sub-heading Nos. 2404.41, 2404.50 and2404.60 of the Schedule to the Central Excise Tariff Act, 1985(5 of 1986).”

5. The 1988 amendment to Section 14 of the CST Act was with aview to align the description of goods in that law, with the description in

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Athe CET Act, as is clear from the Finance Bill, 1988. Heading 24.04 ofthe CET Act originally read to include “Gudaku with brand name andwithout brand name” (Entries 2404.11 and 2404.12); cut tobacco (Entry2404.13); hookah tobacco, chewing tobacco (including preparationsknown as khara masala, khiman, dokta, zarda and surti (Entry2404.39); snuff (Entry 2404.49); and snuff of tobacco (Entry 2404.50).BThe entry in relation to chewing tobacco was amended w.e.f. 1993-94.

6. By Finance Act, 1995, ‘Pan Masala’ was brought under theHeading 21.06. In the year 1995, the Fourth Schedule was amended,and the relevant Clause (8) in Chapter 21 read as follows:

C“(8) in Chapter 21, -(i) for NOTE 3, the following NOTE shall be substituted,namely:

‘3. In this Chapter, ‘Pan Masala’ means any preparationcontaining betel nuts and any one or more of the followingDingredients, namely lime, katha (catechu) and tobacco,whether or not containing any other ingredients, such ascardamom, copra and menthol’.

Clause (10) in Chapter XXIV reads as follows:

(i) for NOTE 2, for the figures and word ’24.02, 24.03 andE24.04', 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 relatingFthereto, the following shall be inserted, namely:

21.06 2106.00 ‘Pan Masala’ 50%”

Finance (No. 2) Act, 1996, again changed the entry, in the followingmanner:

G“(7) in Chapter 24, after NOTE 4, the following NOTE shallbe inserted, namely:

5. In this Chapter, ‘smoking mixtures for pipes and cigarettes’of sub-heading No. 2404.10 does not cover ‘Gudaku’.”

.....

H

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

“(iii) For Heading No. 24.03 and the entries relating thereto,the following shall be substituted, namely The relevant extracts from the Finance Act, 2001, which againcarried out changes, read as follows:

“ THE FOURTH SCHEDULE

[See Section 134 (a)]

PART - I

In the First Schedule to the Central Excise Tariff Act, -

(1) in Chapter 21, for NOTE 3, the following NOTE shall besubstituted, namely:

3. In this Chapter, ‘Pan Masala’ means any preparationcontaining betel-nuts and any one or more of the followingingredients, namely:

but not tobacco, whether or not containing any otheringredients such as cardamom, copra and menthol”;

(2) in Chapter 24, after NOTE 5, the following NOTE shallbe inserted, namely:

‘6. In this Chapter, ‘Pan Masala’ containing tobacco”,commonly known as ‘Gutkha’ or by any other name, means

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Aany preparation containing betel-nuts and tobacco and anyone or more of the following ingredients, namely:

BWhether or not containing any other ingredients such ascardamom, copra and menthol.”

On the above products, a special excise duty of 16% was alsolevied in the V Schedule, apart from additional duties of excise in Part-II of the VI Schedule as indicated below:

C

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The Delhi batch of appeals: Shanti Fragrances[2], TrimurtiFragrances[3], Kuber Tobacco[4], Sunrise Food Products[5], and DharamPal Satyapal[6]F

7. In this batch of appeals, the grievance is in respect of fivejudgments of the Delhi High Court, on the interpretation of the DST Act.

2 CA No. 8485/2011, against impugned judgment dated 05.11.2004 in WP (C) No.11251/2004 (DHC).

3 CA No. 8486/2011, against impugned judgment dated 05.04.2006 in WP (C) No.2925/2005 (DHC)G4 CA No. 8491-94/2011, against impugned judgment dated 01.12.2006 in WP (C) No.17886/2006 (DHC); and CA No. 8487/2011, against impugned judgment dated05.04.2006 in WP (C) No. 23698/2005 (DHC).

5 CA No. 8488/2011, against impugned judgment dated 05.04.2006 in WP (C) No.9837/2005 (DHC).

6 CA No. 8495/2011, against impugned judgment dated 14.11.2007 in WP (C) 7883/H2007 (DHC)

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

The earliest judgment was delivered in relation to the appeal byM/s Shanti Fragrances; the subsequent judgments have reiterated theruling in that case.

8. Section 3 of the DST Act imposes local sales tax on everydealer whose turnover exceeds the limit specified in a notification, andwho is registered or is liable to pay tax under the CST Act, on all saleseffected on or after the commencement of the DST Act. Section 3(6)reads as follows:

“no dealer who deals exclusively on one or more classes ofgoods specified in the Third Schedule shall be liable to payany tax under this Act.”

Section 7 of the DST reads as follows:

“7. Tax Free Goods

(1) No tax shall be payable under this Act on the sale of goodsspecified in the Third Schedule subject to the conditions andexceptions, if any, set out therein.

(2) The [7][Lieutenant Governor may] by notification in theOfficial Gazette, add to, or omit from, or otherwise amend,the Third Schedule either retrospectively or prospectively, andthereupon the Third Schedule shall be deemed to be amendedaccordingly:

Provided that no such amendment shall be made retrospectivelyif it would have the effect of prejudicially affecting the interestsof any dealer.”

Entry 22 of the Third Schedule reads as follows:

“22. Tobacco as defined under the Central Excise and SaltAct, 1944 (1 of 1944).”

9. The effect, prima facie, of an overall reading of provisions ofthe DST Act therefore, is that all dealers whose turnover exceeds thequantified amount which is termed “as taxable quantum” during therelevant period, are liable to pay state or local sales tax. Section 3(6) of 7 Substituted for “The Administrator may, with the previous approval of the CentralGovernment and “ by Notification No. F4(120)/94 -Fin.(G)/2137 to 2145 dated02.03.1998.

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Athe Act states that the dealer who exclusively deals in goods specified inthe Third Schedule shall not be liable to pay tax.

10. By a notification dated 31.03.2000 issued by the competentauthority i.e. the Lt. Governor of the National Capital Territory of Delhi(hereafter “NCTD”), Entry 46 was inserted in the First Schedule to theBDST Act. That Entry reads as follows:

“46. Pan Masala and Gutkha”

11. The First Schedule is dealt with under Section 4 of the DSTAct (“rate of tax”) it broadly enacts [by Section 4(1)(a)] that the taxableturnover “in respect of the cases specified in the First Schedule”Cwould be at the rate of 12 paise to a rupee. Thus, goods enumerated inthe First Schedule are per se subjected to be local or state sales tax levyunder the DST Act @ 12%. Similarly, goods referred to in the ThirdSchedule are tax-free. It is also clear that the Lt. Governor is authorisedto change the entries, as indicated in Section 7, that is to say, from tax-Dfree goods to taxed goods and vice versa.

12. The appellants had argued before the Delhi High Court, thattobacco is mentioned in the Third Schedule at Sl. No. 22 and that theexpression (tobacco) refers to what is defined as such under the CentralExcise Act, 1944 (hereafter “CEA”). Consequently, to ascertainE“tobacco”, one has to refer to the CEA read with Chapter 24 of theSchedule to the CET Act. Chapter Note 3 thereof reads as under:

“In this Chapter, ‘tobacco’ means any form of tobacco,whether cured or uncured and whether manufactured or not,and includes the leaf, stalks and stems of the tobacco plant,Fbut does not include any part of a tobacco plant while stillattached to the earth.”

13. Chapter Note 6 reads as follows:

“In this Chapter, “Pan Masala containing tobacco”,commonly known as ‘Gutka’ or by any other name, meansany preparation containing betel nuts and tobacco and anyone or more of the following ingredients, namely:

G

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

whether or not containing any other ingredients, such ascardamom, copra and menthol.”

Chapter 24 includes Heading No. 2404.49, which reads as under:

“Pan Masala containing tobacco”

14. The appellants had urged before the High Court that “gutkha”is “tobacco” and relied on Kothari Products Ltd. v. Government ofA.P[8] and State of Orissa v. Radheshyam Gudakhu Factory[9]. Thiscourt in Radheshyam Gudakhu Factory (supra), noted that “tobacco”in Section 2(c) of the ADE Act means goods in Entry 9 of the FirstSchedule to the CET Act which is as follows:

“‘Tobacco’ means any form of tobacco, whether cured oruncured and whether manufactured or not, and includes theleaf, stalks and stems of the tobacco plant, but does notinclude any part of a tobacco plant while still attached to theearth.”

15. In Radheshyam Gudakhu Factory (supra) the issue waswhether ‘Gudaku’ was covered by the expression, ‘tobacco’ defined inADE Act. The court held that “gudaku” is a form of smoking tobaccoand is a product of tobacco, in common parlance. Before the Courtthere was no dispute that “gutkha” is not included in “tobacco”. Thus, itis clear that “Gutkha” and “Gudaku” are both covered by the expression“tobacco” as understood in Chapter Note 3 of the CET Act. Theappellants argued that when ‘Gudaku’ and ‘Gutkha’ are tobacco andfell within Entry No. 22 of the Third Schedule of the Act, local sales taxcannot be levied by introducing Entry No. 46 through a notification andby including it in the First Schedule. Kothari Products Ltd. (supra) wasrelied on; the dealer was dealing in ‘Gutkha’ (under the brand “PanParag”). The introduction of Entry 194 (which taxed “pan masalaincluding gutkha”) in the First Schedule to the A.P. General Sales TaxAct (APGST Act) was in issue. APGST Act had a provision[10] like Section7 of the DST Act which exempted goods in the Fourth Schedule. TheFourth Schedule referred to tobacco (Entry 7) and its explanation statedthat it shall be 8 (2000) 9 SCC 263 [hereafter ‘Kothari Products Ltd.’]

9 1988 (68) STC 92 (SC); (2018) 11 SCC 505 [hereafter ‘Radheshyam Gudakhu Factory’]

10 See Section 8.

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A“shall be goods included in the relevant heads and sub-headsof the First Schedule to the Additional Duties of Excise (Goodsof Special Importance Act, 1957, but does not include goodswhere no additional duties of excise are levied under thatSchedule.”

B16. This court held that ‘gutkha’ is tobacco covered by an Entryin the First Schedule to the said ADE Act and that the branded gutka inquestion was “gutkha”, and therefore, “goods” covered by Explanationto the Fourth Schedule to the APGST Act. It was hence exempted bySection 8. It was held that the Schedule to the APGST Act could not beamended by including gutkha as a kind of pan masala in Entry 194 ofCthe First Schedule. Its inclusion was held to be invalid in law.

17. The revenue’s stand before the High Court, was that tobaccoin Entry No. 22 of the Third Schedule of the DST Act, is a general entry.Chapter 24 of the Schedule to the CET Act referred to various itemsunder six heads. It was open for the state to levy tax in accordance withDthe Sales Tax Act; what was needed was to test the legislative competenceof the state in levying the tax. It was urged that Entry No. 22 in ThirdSchedule is a general entry, and Entry No. 46, in the First Schedule is aspecific entry. The revenue relied on this court’s ruling in Commissioner,Sales Tax, U.P. v. Agra Belting Works[11], where the Court pointed outEthat if a notification under a provision[12] grants exemption from tax, andlater, a subsequent notification (under another provision) prescribes therate of tax, the intention is to withdraw the exemption and impose thelevy at the rate prescribed in the later notification. The court held thatsince the power to grant exemption and variation of the rate of tax iswith the State, there is no compulsion in the statute that a separateFnotification recalling exemption is a pre-condition for imposing tax atany rate. The revenue also relied on two cases that followed the ratio inAgra Belting Works (supra) - Sale Tax Officer, Sector IX, Kanpur v.Dealing Dairy Products & Anr.[13] and State of Bihar v. Krishna KutharKabra.[14]. In the latter case, this court followed the two previous decisionsGand held that a notification introducing an entry and subjecting it to levy,when previously, it was exempt in another part of the taxing statute the 11 [1987] 3 SCR 93: (1987) 3 SCC 140 [hereafter ‘Agra Belting Works’]

12 In that case, Section 4 - as in Section 7 of the DST Act in the present case

13 (1994) 94 STC 93 (SC): 1994 Supp (2) SCC 639 [hereafter ‘Dealing Dairy Products’]

H14 (1997) 9 SCC 763 [hereafter ‘Krishna Kumar Kabra’]

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

“intention was to withdraw the exemption and make the sale leviableto tax at the rate prescribed in the later notification”. The court alsoheld it to be unnecessary that “a specific or separate notificationwithdrawing or revoking the notification should be issued”.

18. The Delhi High Court, after examination of the judgmentscited held that it was difficult to depart from the reasoning indicated bythe various judgments of this court indicated in Agra Belting Works(supra). It therefore, rejected the appellants’ writ petition.

19. It was further held in the impugned judgments that StateLegislatures were competent to levy taxes on the sale or purchase ofthe commodities subjected to additional excise duty. The levy of anysales taxes only meant that additional excise duty levied on suchcommodities by the Central Government would not be distributed amongthe states which had chosen to levy a tax on the sale of such article. Thecourt relied on Mahalakshmi Oil Mills v. State of Andhra Pradesh[15].The High Court ruled that pan masala containing tobacco is, under Chapter24, shown at sub-heading No.2404.49, attracting a duty of 16% and anadditional duty of 18% on the same. Pan masala containing tobaccomanufactured by the appellants did not constitute a declared commodityunder Section 14(ix) of the CST Act read with the CET Act becausesub-heading 2404.49 under Chapter 24 of the CET Act are not sub-headings included in section 14(ix) of the CST Act. It was also held thatpan masala was not a declared item nor was it a declared item on thedate that Section 14(ix) of the CST Act was introduced in the form inwhich it existed in the statute.

The Tamil Nadu case: Dharampal Satyapal and KothariProducts[16]

20. In the appeals by Dharampal Satyapal and Kothari Products,a common judgment of the Madras High Court has been challenged.The appellants had urged that gutkha, was a preparation containing notonly tobacco, but also betel nut, katechu, lime, flavours, permitted spices,saffron, and that tobacco is its essential character in relation to thedominant object of the user. The percentage of tobacco varies from 7%

15 [1988] Suppl 2 SCR 1088 : (1989) 1 SCC 164 [hereafter ‘Mahalakshmi Oil Mills’]16 CA No. 8502/2011 and CA No. 8496-8501/2011 respectively directed against commonimpugned judgment dated 13.04.2009 in WP No. 4001/2002 and 4604-09/2002 (MadrasHC).

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Ato 15%. The appellants were aggrieved by the inclusion of the goods as‘Pan Masala’ (by whatever name called) - containing betel nuts, that isto say, nut of areca, katechu broken and perfumed, and lime or mentholor sandal oils or cardamom or tobacco or any one or more of theseingredients at Sl. No. 2 of Part-J of the First Schedule read with Section3(2) of the TNGST Act. The period of dispute is from October, 2000 -BFebruary, 2001. The appellants urged – much like in the Delhi cases,that if the goods fell within the description of Sl. No. 1(iv)(d) of the ThirdSchedule of the TNGST Act, they are exempt from tax by virtue ofSection 8. Once the goods are exempted by enumeration under the ThirdSchedule, Section 8 of the State Act operates, to exempt the goods fromClevy under the State Act. The subsequent specification of the goods inthe First Schedule will have no effect in view of the exemption. Theexemption under Section 8 of the TNGST Act is not subject to anyrestriction or condition as far as Sl. No. 1(iv)(d) of the Third Schedule isconcerned. The definition under Sl. No. 1(iv)(d) of the Third Schedule isnot restricted to chewing tobacco, but includes preparations containingDchewing tobacco and the word ‘including’ should be construed to enlargethe Entry to comprehend all preparations of chewing tobacco and notrestricted to just chewing tobacco.

21. Section 3 of the TNGST Act is the charging section; Section3(2) enacts as follows:E

“(2) Subject to the provisions of sub-section (1), in the caseof goods mentioned in the First Schedule, the tax under thisAct shall be payable by a dealer, at the rate and at the pointspecified therein on the turnover in each year relating to suchgoods.”F22. Much like Section 7 of the DST Act, Section 8 of the TNGSTAct reads as follows:

“Subject to such restrictions and conditions as may beprescribed, a dealer who deals in the goods specified in theGThird Schedule, shall not be liable to pay any tax under thisAct in respect of such goods.”

23. Serial No. 1 (iv)(d) of the Third Schedule to the TNGST Act(which enumerated exempted articles) read as follows:

“1. (iv) Other manufactured tobacco as described againstHthe heading ’24.04", including- M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

(a) smoking mixtures for pipes and cigarettes.

(b) cut tobacco

(c) Bins

(d) Chewing tobacco and preparations containing chewingtobacco.

(e) Snuff of tobacco and preparations containing snuff oftobacco in any proportion”

24. The High Court’s judgement considered all previous decisionsof the courts, including the judgement in Kothari Products Ltd. (supra)as well as judgments of various High Courts as to whether Pan masalais tobacco. The court adopted the test indicated as the ‘common parlancetest’ i.e., whether a common man understands “pan masala” as tobaccoor a product containing tobacco. It held that if the common man is askedto buy chewing tobacco, he may buy an article that is mainly chewingtobacco and in fact falls within the same class of the CET Actclassification, but one would not buy pan masala. It was, therefore, heldthat pan masala is different from chewing tobacco or even tobacco. Thecourt also ruled - that applying the General Rules for Interpretation underthe CET Act, it was discernible that “pan masala containing tobacco”provides the most specific description for the goods in question, even iftobacco is one of the ingredients in the goods, since the description ofpan masala in Heading 21.06 describes the goods more specifically, ithad to be preferred, without going into Rule 3(b). What therefore, washeld was that the amendment, brought into force from 2001, to the effectthat chewing tobacco did not include and never included pan masalacontaining tobacco, and but for the inclusion of ‘pan masala containingtobacco’ in Chapter 24 (Heading 2404.49) with effect from 2001, theywere goods separately covered under another class altogether, i.e.Heading number 21.06.

The Allahabad judgments: P.J. Aromatics[17], Sarin & Sarin[18]and Raj Pan Products[19]

17 CA No. 10374-10379/2014, against impugned judgments dated 12.03.2014 in STRNo. 1281-82/2004, and 11.04.2014 in STR No. 789-792/2004 (Allahabad HC).

18 CA No. 8617/2014, against impugned judgment dated 25.04.2014 in TTR No. 91/2005 (Allahabad HC).

19 CA No. 289/2023, against impugned judgment dated 08.11.2017 in TTR No. 1830/2004 (Allahabad HC).

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A25. In these cases, the assesses manufacture gutkha and disputedimposition of tax on sale of the same. The authorities, under the UPTTAct ruled that 10% tax was leviable on sale of gutkha which was treatedas an ‘unclassified item’. Section 3 under the UPTT Act, imposes thelevy of trade tax on the sale by registered dealers, of various articles.Section 4 of the Act empowers the state to exempt articles from theBlevy; the relevant part of that provision, reads as follows:

“Section 4 – Exemption from tax shall be payable on (a) thesale or purchase of water, milk, salt excluding processed andbranded salt, newspapers, or any other goods which the StateGovernment may, by notification, exempt.”C

26. The State Government issued a notification dated 31.01.1985exempting certain goods from tax under the UPTT Act, with effectfrom 01.02.1985. That notification[20], contained the Serial No. 14, whichreads as under:

D“14. Cigars, cigarettes, biris (both machine made and hand-made) and tobacco in any form whether cured and uncuredand whether manufactured or not, including the leaf, stalkand stems of the tobacco plant and all products of tobacco,but including any part of the tobacco plant while still attachedto the earth.”E

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27. By Notification dated 26.06.1997, published in Gazette on01.07.1997, Entry 14 was amended to exclude, specifically “pan masalacontaining tobacco”, by whatever name called. Another amendmentby Notification[21] dated 06.04.1999 published in Gazette dated 10.04.1999resulted in Entry 14 reading as follows:F

“14. Cigars, cigarettes, biris (both machine made and hand-made) and tobacco in any form whether cured and uncuredand whether manufactured or not, including the leaf, stalkand stems of the tobacco plant and all products of tobacco,excluding pan masala containing tobacco but including anyGpart of the tobacco plant while still attached to the earth.”

28. The exemption specifically withdrawn in respect to “panmasala containing tobacco”, by whatever name called, by notification 20 dated January 31.01.1985

H21 No. T.I.F.-2-595/XI-9(4)/99-U.P. Act-15-48-Order-98

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

dated 26.06.1997, continued after issuance of notification dated06.04.1999 as well. The Allahabad High Court noted the previous HighCourt decisions, as well as the judgment of this court, in Kothari ProductsLtd. (supra) and held that in view of the specific provision in the APGSTAct, the High Court held that gutkha (gudaku), an entry under the FirstSchedule to the ADE Act, was exempted from tax under the APGSTAct. The High Court further held that there was no provisioncorresponding to the APGST Act in the UPTT Act and that the earliernotification (of 1985), was much wider and included tobacco productslike gutkha, and pan masala containing tobacco which were exemptedby virtue of Section 4(1) and by not with reference to any statute like theCET Act, etc. Therefore, it was ruled that the contention that somethingwas included in the CET Act, would stand exempted from tax was notcorrect, unless the State Act contained a specific provision to that effect.

Appellants’ contentions

29. Mr. Dhruv Agarwal, learned senior counsel appearing in theDelhi cases urged that the heading of Section 7(1) of the DST Act is“Tax free goods” and it uses the phrase “-no tax shall be payable”.In view of Entry 22 of Schedule III read with Section 7(1), gutkha was“tax free goods” and as per specific mandate of Section 7(1) “no taxshall be payable under the Act” (i.e. the DST Act) on sale of goodslisted under Schedule III. The clear effect of Section 7(1) read withEntry 22 of Schedule III was that gutkha fell outside the charge orpurview of the levy.

30. It was argued Section 7(2) inter alia provides that the Lt.Governor could by notification add to, or omit from, or otherwise amendSchedule III and “thereupon” it was deemed to be amended. In spiteof this power, Entry 22 of Schedule III was not amended and gutkhacontinued to be tax-free goods. Gutkha thus, being tax-free goodscontinued to fall outside the DST levy and was not liable to be includedin “taxable turnover” under Section 4(2)(a)(ii) of the DST Act. Section4(1), provides for applying the rate of tax “in the case of taxableturnover”. When the goods were exempt there was no question of theirinclusion in the taxable turnover. Learned senior counsel relied on TataSky Ltd. v. State of Madhya Pradesh[22]. Learned senior counselsubmitted that the High Court’s reasoning that Entry 22 in Schedule III

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Awas general and that Entry 46 of Schedule I was specific, had noapplication; he cited Reliance Trading Company v. State of Kerala[23].

31. It was urged that Kothari Products Ltd. (supra) is a three-judge bench ruling which held “gutkha is a tobacco” and that gutkha,being covered by Explanation to Fourth Schedule to the State Sales TaxBAct (i.e., APGST Act) and the exemption contained in Section 8 of theSchedule to the State Act could not have been amended by includinggutkha in the First Schedule. This court in Radheshyam GudakhuFactory (supra) held that gutkha is a product of tobacco and that itsessential and effective ingredient remains tobacco; it is also known as aproduct of tobacco in common parlance. Its essential character is thatCof tobacco; “tobacco” falls under Entry 35 of the Schedule to the OrissaSales Tax Act. The decision in Reliance Trading Company (supra) is athree-judge ruling rejecting the revenue’s submissions based on generaland specific entries. It also held that the exemption operating in favourof goods in question in the Third Schedule of the Kerala General SalesDTax Act, 1963 continued as it was not amended even after amendmentof the First Schedule. The result consequently was that irrespective ofany presumed intention of the Legislature in amending the First Schedule,as long as the Entry in the Third Schedule remained un-amended, therewas not subject to levy.

E32. It was urged that so far as the other line of judgments mentionedare concerned, Agra Belting Works (supra) was a majority judgment oftwo judges and one judge expressed a dissenting opinion. In that casethere were no ‘tax free goods’ under the statute as in the present case.Instead, that was a case of an Exemption Notification where there wasanother Notification providing the rate. In the judgment, the combinedFeffect of two Notifications was considered. This court relied on AgraBelting Works (supra) in Dealing Dairy Products (supra), and reliedon both these cases, when deciding Krishna Kumar Kabra (supra). Inall the three cases, there was no issue relating to ‘tax free goods’ as inthe present case.

G33. It was next submitted that Entry 22 of the Third Schedule ofthe DST Act amounts to a ‘Legislation by way of Incorporation’ sofar as it includes a specific provision from the CEA defining ‘tobacco’for the purposes of formulating provisions under the DST Act. The Lt.

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

Governor is entrusted with the power to amend the Third Schedule ofthe DST Act which incorporates the definition of ‘tobacco’. It wassubmitted that when the definition is so incorporated, subsequent changesin law, have no impact on the earlier, incorporated provisions. Counselcited some decisions[24] of this court, on this aspect.

34. Mr. Pawan Shree Agarwal, learned counsel appearing for P.JAromatics, relied on Pappu Sweets and Biscuits v. Commissioner ofTrade Tax, U.P, Lucknow[25], to argue that subsequent legislation can belooked at in order to see the correct interpretation of an earlier legislation,especially when the earlier one is obscure or ambiguous or capable ofmore than one interpretation. Counsel relied on the amendment to theADE Act, by Finance Act, 2001, which inserted Entry 8404.49 as thespecies of the genus “Chewing Tobacco” to read as under:

“Chewing Tobacco and preparations containing ChewingTobacco; Pan Masala Containing Tobacco 8404.41….

8404.49 Pan Masala Containing Tobacco”

35. A comparison of the above and the parent Entry 4 to the FirstSchedule to the CEA, 1944 shows that “Chewing Tobacco” was thegenus and “Pan Masala Containing Tobacco” commonly known as“gutkha” was a species of chewing tobacco. Therefore, it was alwayscovered under the original definition and formed part of Entry 14 of theSchedule to the UPTT Act (as well as Sl. No. 22 of the Third Scheduleto the DST Act).

36. Mr. Agarwal argued that the levy of tax is under Section 3 ofthe UPTT Act while the rate of tax is provided in Section 3A. Section 4of the Act empowers the State government to grant exemption. From areading of Sections 3A and 3D it is manifest that the rate of tax ondeclared goods cannot be more than the rate which is provided in Section15 of the CST Act. Legislatively, therefore, restrictions enacted underSection 15 of the CST Act have been recognized in Sections 3A and 3D

24 Narottamdas v. State of Madhya Pradesh & Ors [1964] 7 SCR 820; NagpurImprovement Trust v. Vasantrao & Ors (2002) 7 SCC 657; and Girnar Traders (3) v.State of Maharashtra & Ors. [2011] 3 SCR 1

25 [1998] 2 Suppl. SCR 119: (1998) 7 SCC 228

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Aof the UPTT Act. It is important to note that the State has not relied onany notification prescribing rate of tax on “Pan masala containingtobacco” in these cases. “Pan masala containing tobacco” has beentaxed as an ‘unclassified item’ or what can be termed as a ‘residuaryentry’. Thus, the question posed was whether the pan masala containingtobacco i.e., “gutkha” is taxable as declared goods under Entry 14(ix)Bof the CST Act or as an unclassified item or in the residuary entry.

37. It was submitted that “Pan masala containing tobacco” isa chewing tobaccofor several reasons. One, the entry has to be read aswidely as possible and any form of “chewing tobacco” including any ofits preparations will form part of that entry. Two, gutkha is essentially aCpreparation of chewing tobacco and what makes it distinct from plainPan masala are its essential characteristics i.e., tobacco (which is ingutkha). Three, it is a settled principle of classification that it is not apercentage of a particular item in the commodity which will determinethe nature of product. Four, undisputedly “gutkha” is sold by the appellantDPJ Aromatics under a brand name “Jeet”. Therefore, it was urged thatit will fall in entry 2404.41 which is specifically covered under Section14(ix).

38. It was further argued that Entry 21.06 of the CET Act has norelevance for the present purpose when notifications under the Act areEbeing considered. Firstly, there is no entry as “pan masala containingtobacco”, and secondly, there is no entry like 21.06 of the CET Act inthe notification which provides the rate of tax and therefore theclassification is under the residuary clause according to the revenue.

The revenue’s contentions

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39. Mr. N. Venkatraman, the Additional Solicitor General (ASG)appeared on behalf of the Govt. of NCT of Delhi; Mr. Raizada, learnedAdditional Advocate General (AAG) appeared on behalf of the State ofUP, and Mr. Radhakrishna, learned senior counsel appeared on behalfof the State of Tamil Nadu.

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40. The revenue submitted that in Kothari Products Ltd. (supra)what was dealt with was Gudaku, a tobacco product falling under sub-heading 2404.11 of the CET Act as well as the ADE Act and that is notthe case of the petitioners herein; and that it was a decision rendered onan issue of fact which may not bind this court.

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

41. It was next argued that the use of the construction of the term‘including’ in sub-heading 2404.41 in the present case, is followed by thewords “preparations commonly known as” and therefore, the saidword has to be understood and read as “and” in the conjunctive sense.As a result, the preparations mentioned therein should be treated asexhaustive and cannot be expanded beyond that.

42. It was argued that pan masala and gutkha in these cases areseparate and distinct entries from tobacco and therefore the StateLegislatures are competent to tax pan masala and gutkha. There is nodispute regarding distinction between the independent existence of entries,i.e., tobacco and pan masala gutkha, respectively. It was argued thatthe State Legislatures are competent to levy taxes on sale or purchaseof the commodities subjected to ADE Act. All that the levy of any suchsales tax would mean is that the additional excise duty levied and collectedon such commodities by the Central government will not be distributedamong the states which had chosen to levy a tax on the sale thereof.This issue has been well settled by this court in Mahalakshmi Oil Mills(supra).

43. It was further submitted that the argument with respect todefinition of “tobacco” remaining unchanged, as was incorporated atthe time of enactment of the state laws, without reflecting later changes,is incorrect. Counsel submitted that the definition had to be in terms ofthe changing definitions of tobacco under the Central enactments; reliancewas placed on decisions reported as State of Madhya Pradesh v. M.V.Narsimhan[26]; Nagpur Improvement Trust v. Vasantrao[27], and U.P.Avas Evam Vikas Parishad v. Jainul Islam & Anr.[28] for the propositionthat in the present case, the definition of tobacco cannot be said to be aninstance of legislation by incorporation, but rather, that it is a case oflegislation by reference. Therefore, changes in the statute willautomatically be reflected in the previous law.

44. It was urged that “Pan Masala containing tobacco” and“chewing tobacco” are not identical. They undoubtedly were includedunder the same heading. However, they were not one commodity. Itwas argued that the amendment with effect from 2001 that “chewingtobacco” does not include, and never included “Pan Masala containing 26 [1976] 1 SCR 6: (1975) 2 SCC 37727 [2002] Supp (2) SCR 636: (2002) 7 SCC 65728 [1998] 1 SCR 254: (1998) 2 SCC 467

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Atobacco” and but for the inclusion of “Pan Masala containing tobacco”in Chapter 24 and sub-heading 2404.49 with effect from 2001, it wouldhave been goods covered by Heading 21.06. The General Rules forInterpretation (in the CEA) was relied on, to say that “Pan Masalacontaining tobacco” is a specific description of the goods. Further,that tobacco is an ingredient in the article, is not relevant, because theBdescription (of ‘Pan Masala’ in Heading 21.06) describes the goodsspecifically. That classification would prevail. It is, argued that Rule 3(b)is irrelevant. By its description, the goods are ‘Pan Masala’ containingtobacco.

Analysis and reasoningC

Analysis

Analysis and reasoningC

45. As is evident, in all the three cases, emanating from judgmentsof the Delhi, Madras and Allahabad High Courts, the local enactmentscontain a similar scheme or pattern, which is (a) a provision that imposeslevy of sales or trade tax; (b) a provision which empowers fixation ofdifferent rates for different goods, or classes of goods and (c) a provisionDor provisions which exempt goods, enumerated in a Schedule, for thatpurpose (like in the case of Delhi - in the Third Schedule, read withSection 7 of the DST Act) or through a general notification. In all cases,the arguments by the dealers were more or less identical, which is relianceon Kothari Products Ltd. (supra); that when specific goods areEexempted, they cannot be taxed by inclusion in the notification relatingto rate of taxation, notwithstanding that the authority to exempt, and theauthority to tax or increase rates, resides with the state or the sameauthority. The dealer/appellants also relied on the provisions of the CETAct, especially Chapter 24, to contend that pan masala or gutkha, weretobacco, and therefore, exempt. All these arguments were rejected byFthe High Courts. The Delhi High Court judgment in the case of ShantiFragrances, was noticed by the later judgments of the same High Court,as well as other High Courts.

46. At the relevant time, ‘Pan Masala’ was described as apreparation containing betel nuts and any one or more other ingredientsGsuch as lime, katha, katechu, cardamom, copra, menthol and tobacco.This is the definition of Pan Masala under the CET Act which continuedtill 1995. Heading 21.06 covered ‘Pan Masala’ containing “lime, katha,katechu, cardamom, copra, menthol and tobacco” or any one ormore of these ingredients. Chapter 24 dealt with tobacco andHmanufactured tobacco substitutes and the relevant sub-heading at that M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

time was 2404.41 which deals with chewing tobacco, includingpreparations commonly known as khara masala, kimam, dokta, zarda,sukha and surti.

47. Parliament Act 22 of 1995, substituted Note-3 to Chapter 21of the CET Act. “Pan Masala” was described as “any preparationcontaining betel nuts and any one or more of the followingingredients, viz., lime, katha, katechu or tobacco, whether or notcontaining any other ingredients such as cardamom, copra andmenthol”. The primary ingredient of pan masala therefore, is betel nut,which could be mixed with other ingredients in combination or in isolation.This position prevailed as on 01.03.1988. In 1995, the definition underwenta change. Betel nuts remained the essential ingredient along with “lime,katha or tobacco” together, or separately. Whether the productcontained cardamom, copra, and menthol or not was irrelevant: yet oneof the three ingredients (lime, katha and tobacco), had to be found in thepreparation known as ‘pan masala’. By Parliament Act 33 of 1996, thedescription to Chapter Heading 24.04 and sub-headings under it werere-numbered. The description of goods was re-classified. There was nochange in Chapter 21; Heading 21.06 continued to be only ‘pan masala’.That changed with effect from 01.03.2001, through Note-3 which readsas follows:

…”3. In this Chapter, ‘Pan Masala’ means any preparationcontaining betel nuts and any one or more of the followingingredients, namely:

i) lime; and

ii) kattha (catechu)

but not tobacco, whether or not containing any otheringredients, such as cardamom, copra and menthol.”

Note-6 in Chapter 24 read as follows:

“6. In this Chapter, ‘’Pan Masala’ containing tobacco’,commonly known as ‘Gutkha’ or by any other name, meansany preparation containing betel nuts and tobacco and anyone or more of the following ingredients, namely:

i) lime; and

ii) kattha (catechu),

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1072SUPREME COURT REPORTS

Awhether or not containing any other ingredients, such ascardamom, copra and menthol.”

48. In Chapter 24, for sub-heading 2404.40 and the related entries,the following was substituted, namely:

“Chewing tobacco and preparations containing chewingBtobacco; ‘Pan Masala’ containing tobacco.

2404.41 - Chewing tobacco and preparations containingchewing tobacco 2404.49.1 - ‘Pan Masala’ containing tobacco”C49. Entry No. 2 of Part-J in the First Schedule to the ADE Act issimilar to sub-heading 2404.49 - as amended from 01.03.2001. As aresult, additional excise duty could be imposed on ‘’Pan Masalacontaining tobacco”. As far as Kothari Products Ltd. (supra) isconcerned, a Full Bench of the (undivided) Andhra Pradesh High CourtDhad examined the interface between the APGST Act, and the provisionsof the CET Act, in the context of whether gudaku was subjected tosales tax levy, as the dealers had contended that it was tobacco, andtherefore, exempt under the local law.[29]The Full Bench ruling consideredthe local enactments, and sub-headings in Chapters 21 and 24 of theCET Act, and held that although gutkha falls within the term ‘panEmasala’, since no additional duty of excise is levied on it, yet it could notbe held that gutkha was exempt from state sales tax.

50. The Full Bench of the Andhra Pradesh High Court had toconsider, if Entry 7 of the Fourth Schedule to the APGST Act, whichexcluded tobacco, also resulted in exemption as long as it was notFsubjected to tax under the ADE Act. The High Court held, interpretingthe CET Act that each chapter contained a table, specifying against thedescription of “goods” in each sub-heading and the rates at which bothbasic duty as well as additional duty are levied. Chapter 21 deals with“Miscellaneous Edible Preparations”. Note 3 to that chapter states thatin that chapter “pan masala” meant any preparations containing betelGnuts and any one or more of ingredients, namely, lime, katha (catechu)and tobacco, whether or not containing any other ingredients, such ascardamom, copra and menthol. It was held that “chewing tobacco andpreparations containing chewing tobacco” is comprehensive enough M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

to take in its fold gutkha which contains 7% chewing tobacco. Thecourt then ruled that having regard to the ingredients of gutkha, it fellwithin the meaning of “pan masala” and was covered by heading 21.60and subjected to basic duty of Central Excise, but no additional duty.Chapter 24 deals with “tobacco and manufactured tobaccosubstitutes, etc.”. The court held that there was no reference to “gutkha”as such in any one of the headings and sub-headings of that chapter.

51. It was held by the Full Bench that provisions of explanation ofthe Fourth Schedule to the APGST Act, with reference to the heads andsub-heads in the CET Act, what was relevant in ascertaining the realimport of the expression “chewing tobacco and preparationscontaining chewing tobacco” was the breadth of the terms used inthe entry, sub-heading or a notification, or statute. From that aspect, thecourt concluded that gutkha fell within the wide language of the saidexpression. However sub-heading 2404.40 “Chewing tobacco andpreparations containing chewing tobacco” was a general sub-head.The court concluded that it is a settled rule of interpretation that a specificreference prevails over a general entry. Since the court held that “gutkha”fell within the meaning of “pan masala” in the sub-heading 21.06, therecould be no doubt that “pan masala” was a specific sub-head evenassuming that it falls within the meaning of “chewing tobacco”. Therefore,the court concluded that in view of the specific head “pan masala” inChapter 21, that item was excluded from the general sub-head 2404.40“Chewing tobacco and preparations containing chewing tobacco”.The court also concluded that though “gutkha” fell within the term “panmasala” in Chapter 21 under sub-head 21.06 yet as it is not subjected toadditional duty, an essential condition envisaged by the explanation forclaiming exemption, is lacking.

52. This court, in Kothari Products Ltd. (supra) reversed theFull Bench decision stating that:

“3. The contention on behalf of the appellants is that it is notopen to the State of Andhra Pradesh to tax gutka. Section 8of the State Sales Tax Act provides that a dealer who deals inthe goods specified in the Fourth Schedule thereto shall beexempt from tax thereunder in respect of such goods. Entry 7of the Fourth Schedule of the State Sales Tax Act refers totobacco and the explanation in this behalf is that the goodsmentioned in Entry 7

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“shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties ofExcise (Goods of Special Importance) Act, 1957, but doesnot include goods where no additional duties of excise arelevied under that Schedule.”

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The said Additional Duties of Excise Act, in Entry 2404, refersto “Gudaku” under the sub-Heading “Other manufacturedtobacco”. Gudaku which bears a brand name is taxable underEntry 2404.11 at the rate of 5% and Gudaku not bearing abrand name is subject to tax at nil rate under Entry 2404.12.The Schedule to the Central Excise Act also makes the samedistinction between Gudaku bearing a brand name andGudaku not bearing a brand name under the sub-Heading,“Other manufactured tobacco and manufactured tobaccosubstitutes; homogenised or ‘reconstituted’ tobacco; tobaccoextracts and essences”.

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4. Clearly, therefore, gutka is a tobacco that is covered by anentry in the First Schedule to the said Additional Duties ofExcise Act and the branded gutka that the appellantsmanufacture is liable to tax thereunder. Gutka, therefore, is‘goods’ covered by the Explanation to the Fourth ScheduleEto the State Sales Tax Act and, therefore, covered by theexemption contained in Section 8 thereof. The Schedule tothe State Act could, therefore, not have been amended byincluding gutka as a kind of pan masala in entry 194 of itsFirst Schedule. It must, therefore, be held that the inclusionof gutka in the said entry 194 in the manner in which it isFdone is bad in law and is struck down. The appellants will beentitled to all consequential benefits.”

53. As far as the first point argued by the appellants are concerned,which is, whether in a state law which contains two provisions: onewhich taxes entries, and another which exempts articles from levy (thelatter being listed separately, in a notification, or a schedule to theenactment itself), the inclusion, or insertion into the list or schedule ofarticles that can be taxed (like Section 4 of the DST Act) without amendingthe subsisting notification that excludes levy (as under Section 7 DST)would the levy fail?

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M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

54. There was apparent conflict between two lines of judgmentsof this court i.e., Radheshyam Gudakhu Factory and Kothari ProductsLtd. (supra) on the one hand, and Dealing Dairy Products (supra),Krishna Kuthar Kabra (supra) and Agra Belting Works (supra) onthe other hand. This court, in the latter three judgments held thatnotification introducing an entry and subjecting it to levy, when previously,it was exempt in another part of the taxing statute, the intention was towithdraw the exemption and make the sale leviable to tax at the rateprescribed in the later notification. The court held it to be unnecessarythat “a specific or separate notification withdrawing or revokingthe notification should be issued”. This conflict was referred to alarger bench of five judges, in Trimurti Fragrances (P) Ltd v. Govt ofNCT of Delhi[30] (a case, which is part of the present batch). The courtheld that the judgment in Agra Belting Works (supra) does not in anymanner conflict with the ruling in Kothari Products Ltd. (supra) orRadheshyam Gudakhu Factory (supra):

“In our considered opinion there is no conflict betweenthe Kothari Products (supra) line of cases and the AgraBelting line of cases. The Kothari Products (supra) line ofcases was on the question of whether “tobacco” or othergoods specified in the First Schedule to the ADE Act and henceexempted from Sales Tax under State sales tax enactments,can be made exigible to tax under the State enactments byamending the Schedule thereto. On the other hand, AgraBelting Works (supra) line of cases was on the question ofinterplay between general exemption of specified goods fromsales tax under Section 4 of the U.P. Sales Tax Act andspecification of rates of sales tax under Section 3-A of thesaid Act. This Court held that goods exempted from sales taxunder Section 4 would be exigible to tax by virtue of subsequentnotification under Section 3-A specifying the rate of salestax for any specific item of the class of goods earlier exemptedunder Section 4. There being no conflict, the reference toConstitution Bench is incompetent.”

55. The above holding, that there is no conflict between the AgraBelting Works (supra) line of cases, and the Kothari Products Ltd.(supra) line of cases, therefore, concludes the question urged with respect 30 [2022] 15 SCR 516: 2022 SCC OnLine SC 1247

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Ato efficacy or validity of notifications introducing as entries in a schedule(s)and subjecting them to tax, when those articles are part of the statute orare exempted from taxation. The assessees’ contentions therefore, failon this point.

56. Turning next to the question of whether pan masala was anBexempted item, being “tobacco”, it is noticeable that pan masala wasexpressly mentioned in Chapter 21 for the first time, in 1995 in the CETAct. Note 3 defined ‘Pan Masala’ as “any preparation containingbetel nuts and any one or more of the following ingredients, namelylime, katha (catechu) and tobacco, whether or not containing anyother ingredients”. However, at the same time, Chapter 24 containedCa specific entry “tobacco” which enumerated tobacco, manufacturedtobacco, substitutes etc. The relevant sub-heading at that time was 2404.41which enumerated chewing tobacco, including preparations commonlyknown as khara masala, kimam, dokta, zarda, sukha and surti. Thus,the CET Act itself made a distinction between pan masala - whether itDcontained tobacco, or not, and all forms of tobacco. Right from 1995, thedistinction in the CET Act between pan masala (Chapter 21) and tobacco(Chapter 24), had been made. The definition of pan masala also clarifiedthat despite one of its ingredients being tobacco, it would neverthelessbe a separate article.

E57. This court had to consider the effect of the term “includes” inrelation to the definition of tobacco in Mahalakshmi Oil Mills (supra).The controversy was whether the term “tobacco” and the inclusive clausewas wide enough to cover tobacco seeds. This court, observed that:

“14. Can then the words “tobacco” and “any form ofFtobacco” in the first part of the definition be given a widermeaning and read as including the seeds also, particularlyas it talks of “tobacco in any form, cured or uncured,manufactured or unmanufactured”? We do not think they canbe for several reasons. In the first place, tobacco seeds hardlyanswer to the description of either the expressionG“manufactured tobacco” or the expression “unmanufacturedtobacco” in their ordinary connotation; and the expression“cured or uncured” cannot also be associated with tobaccoseeds. The expression used in the first part of the definition,though every wide, is, therefore, singularly inappropriate toHtake within its purview tobacco seeds as well. Secondly, the M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

definition occurs in a statute levying excise duty which isconcerned not with the parts of a plant grown on the field butwith the use to which those parts are put or can be put afterseverance. The legislature could not but have been awarethat if the leaves, stalks and stems of the tobacco plant areused for manufacturing cured tobacco, biris, cigarettes andso on, the seed is also used to produce oil and cake. It takescare to mention the first three items which are used in themanufacture of some forms of tobacco consumption whichare also enumerated but refrains from referring to seeds whichit would have done had it been intended to include the oiland cake also for purposes of the levy. The categories ofunmanufactured tobacco enumerated in the entry in theSchedule include “stalks” but not “seeds”. This also indicatesthat seeds are not intended to be included. In other words,the omission of the word “seeds” from the second part of thedefinition casts its shadow on the first part as well. Indeed itrather looks as if the second part of the definition is intendedto restrict rather than expand the scope of the first part. Thirdly,it is to be noticed that the first part of definition is somewhatrestrictively worded…”

58. In P. Kasilingam v. PSG College of Technology[31]this courtfollowed the same principle, i.e., that “includes” used in conjunction withsome words, expands the natural import of the term, to the extent itincorporates those words:

“The word “includes”, when used, enlarges the meaning ofthe expression defined so as to comprehend not only suchthings as they signify according to their natural import butalso those things which the clause declares that they shallinclude. The words “means and includes”, on the other hand,indicate “an exhaustive explanation of the meaning which,for the purposes of the Act, most invariably be attached tothese words or expressions” [See: Dilworth v. Commissionerof Stamps, [1899] AC 99 at pp. 105-106 (Lord Watson);Mahalakshmi Oil Mills v. State of Andhra Pradesh, [1989] 1SCC 164, at p. 169).”

31 [1995] 2 SCR 1061

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A59. These decisions have been followed in later judgments aswell; one of them is Pioneer Land & Urban Infrastructure v. Unionof India[32]. For these reasons, throughout (till 2001), “Pan masala” andchewing tobacco have received different treatment. They are notinterchangeable or synonymous expressions. Entry 2404 refers to chewingtobacco “including preparations commonly known as “KharaBMasala”, “Kimam”, “Dokta”, “Zarda”, “Sukha” and “Surti””.Gudaku and snuff are dealt with under a separate heading. The effectof inclusion of pan masala with tobacco in Chapter 24 and simultaneouslythat product’s exclusion from Chapter 21, as well as imposition of ADEwith effect from 2001, on ‘pan masala containing tobacco’ meantCthat the product (i.e. pan masala without tobacco) went out, for the firsttime, of the reach of state sales tax. All along, goods and productsdescribed as pan masala and gutkha, were included in Chapter 21.The conclusion therefore, is that till 2001, and the introduction of ADE,these two products were covered by local or sales tax levies.

D60. The General Rules of Interpretation (of the CET Act) whichguide the appropriate classification of products, inter alia, provide that:

“THE FIRST SCHEDULE—IMPORT TARIFF (See Section 2)GENERAL RULES FOR THE INTERPRETATION OF THISSCHEDULEEClassification of goods in this Schedule shall be governed bythe following principles:

1. The titles of Sections, Chapters and Sub-Chapters areprovided for ease of reference only; for legal purposes,classification shall be determined according to the terms ofFthe headings and any relative Section or Chapter Notes and,provided such headings or Notes do not otherwise require,according to the following provisions.

2. (a) Any reference in a heading to an article shall be takento include a reference to that article incomplete or unfinished,Gprovided that, as presented, the incomplete or unfinishedarticle has the essential character of the complete or finishedarticle. It shall also be taken to include a reference to thatarticle complete or finished (or falling to be classified as M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

complete or, finished by virtue of this rule), presentedunassembled or disassembled.

(b) Any reference in a heading to a material or substanceshall be taken to include a reference to mixtures orcombinations of that material or substance with othermaterials or substances. Any reference to goods of a givenmaterial or substance shall be taken to include a reference togoods consisting wholly or partly of such material orsubstance. The classification of goods consisting of more thanone material or substance shall be according to the principlesof rule 3.

3. When by application of rule 2(b) or for any other reason,goods are, prima facie, classifiable under two or moreheadings, classification shall be effected as follows: -

(a) the heading which provides the most specific descriptionshall be preferred to headings providing a more generaldescription. However, when two or more headings each referto part only of the materials or substances contained in mixedor composite goods or to part only of the items in a set put upfor retail sale, those headings are to be regarded as equallyspecific in relation to those goods, even if one of them gives amore complete or precise description of the goods.

(b) mixtures, composite goods consisting of different materialsor made up of different components, and goods put up in setsfor retail sale, which cannot be classified by reference to (a),shall be classified as if they consisted of the material orcomponent which gives them their essential character, insofaras this criterion is applicable.

(c) when goods cannot be classified by reference to (a) or(b), they shall be classified under the heading which occurslast in numerical order among those which equally meritconsideration.”

61. In Collector of Central Excise Nagpur v. Simplex MillsCo. Ltd[33]this court outlined the role of the interpretive rules:

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A“ […] for legal purposes, classification “shall be determinedaccording to the terms of the headings and any relevantsection or chapter notes”. If neither the heading nor the notessuffice to clarify the scope of a heading, then it must beconstrued according to the other following provisionscontained in the Rules. Rule 1 gives primacy to the sectionBand chapter notes along with terms of the headings. Theyshould be first applied. If no clear picture emerges then onlycan one resort to the subsequent rules. The appellants haverelied upon Rule 3. Rule 3 must be understood only in thecontext of sub- rule (b) of Rule 2 which says inter alia thatCthe classification of goods consisting of more than one materialor substance shall be according to the principles containedin Rule 3. Therefore when goods are prima facie, classifiableunder two or more headings, classification shall be effectedaccording to sub- rules (a), (b) and (c) of Rule 3 and in thatorder.”

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62. On a plain application of the interpretive rules, especially Rule3(a) it is clear that the heading which provides the most accuratedescription has to be followed. In the present case, there is no doubt,that before 2001, pan masala and gutkha fell within Chapter 21, aspan masala, regardless of whether they contained tobacco. GoodsEclassifiable under Chapter 24, i.e. tobacco items were more general;also they did not include pan masala.

63. As regards the question of the rate of tax, in view of therestrictions under Section 15 CST Act, neither gutkha nor pan masalawere “declared goods” under Section 14 of the CST Act. The amendmentFto the CET Act did not become part of Section 14(ix). The goods underthe relevant sub-headings of the CET Act were absent in the list ofdeclared goods of the CST Act; they were not part of the provisionsintroduced to the Finance Act, 1988. Therefore, the subsequent changesmade introducing 2404.40 in the CET Act do not affect or changeGthe CST Act. Consequently gutkha and pan masala are not coveredunder sub-heading 2404.40 so far as CST Act is concerned. Resultantlythe arguments of the assessees that the rate of local tax, cannot exceedthe limit under the CST Act, are rejected as unmerited.

M/S TRIMURTHI FRAGRANCES (P) LTD. THR. ITS DIRECTOR SHRIPRADEEP KUMAR AGRAWAL v. GOVT. OF N.C.T. OF DELHI THR. ITSPRINCIPAL SECRETARY (FINANCE) [S. RAVINDRA BHAT, J.]

64. For the foregoing reasons, the appeals by the assessees haveto fail. The revenue’s appeals are consequently allowed. There shall beno order on costs.

Divya Pandey(Assisted by : Shevali Monga, LCRA)

Appeals disposed of.

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