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Dealing with a batch of petitions challenging simultaneous levying of GST and Central Excise Duty on tobacco and tobacco products, the Karnataka High Court last week upheld Union of India's notification of July 6, 2019 whereby Central Excise Duty had been levied on tobacco and tobacco products.

The bench of Justice S. Sunil Dutt Yadav said, 

"In the process of achieving ultimate goal as envisaged while introducing the GST the continuance of levies under the previous legislations unless barred ought to be permitted as being competent vis à-vis available source of power which cannot be defeated by resort to argument based on objects of GST as contained in the Objects Clause."

The petitioners, who are all manufacturers of Tobacco and Tobacco products, had argued that post-introduction of Article 246A (special provision of GST), if on the product by virtue of Goods and Services Tax Act, GST has been introduced, there would no power be left with the Union Government to take recourse to Article 246 r/w Entry 84 of List I to levy a duty of excise. They had alleged that it would in effect render the restructuring of Entry 84 of List I redundant.

Further, in addition to, seeking direction for quashing of Union's notification of July 6, the petitioners had sought a declaration that the Repeal and Saving provision as contained in Section 174 of the Central Goods and Services Act, 2017 insofar as it seeks to save the operation of the Central Excise Act, 1994 qua tobacco and tobacco products as unconstitutional and bad in law.

They had argued that due to this saving clause, tobacco and tobacco product are the only category of goods that are subject to indirect taxes under two regimes viz., GST Regime and Excise Regime.

They had also contended that the levy of basic excise duty and National Calamity Contingent Duty (NCCD) under section 136 of the Finance Act 2001 i.e. a duty of excise on tobacco and tobacco products, is violative of Article 14 on the grounds of unreasonable classification and manifest arbitrariness.

On the other hand, the Union government had argued that considering the nature of both the Federal partners and the complexity involved, certain goods are kept outside the ambit of GST and certain goods such as tobacco, tobacco products and opium are subject to both GST and other taxes.

Union had also asserted that the exercise of power and its availability under Article 246A does not denude or restrict the exercise of power under Article 246. 

Taking submissions of both the sides into account, the court noted that the introduction of levy of Central Excise on tobacco and tobacco products by virtue of Notification of 2019, is traceable to the power under Article 246 with the field of legislation specified in Entry 84 of List I.

Court observed, "The effect of introduction of Article 246A is conferment of the power of simultaneous levy on goods and services in the nature of Goods and Services Tax and the use of the word "notwithstanding" which is a non-obstante clause does not have the effect of abrogation of power available under Article 246."

Court clarified that the words "notwithstanding anything contained in Article 246" as used in Article 246A ought to be construed as having the effect of merely clarifying that in spite of the power under Article 246, power under Article 246A could be exercised and that Article 246 would not be an impediment to the operation of 246A.

Accordingly, court held that "sources of Power Under Article 246A and 246 are in fact mutually exclusive and could be simultaneously exercised."

The court also refuted petitioners' contention that levy of excise duty and NCCD is violative of Article 14. Court said, 

"It must also be noted that the levy is also for the purpose of revenue generation and the choice of the category of goods for the purpose of revenue generation cannot ipso-facto be a ground of judicial review and something more is required such as hostile discrimination and singling out a particular category of goods."

Taking all these factors into account, the court dismissed the petitions seeking quashing of Union's said notification.

Case Title: M/s.V.S.Products v. Union of India