PRABHA SRIDEVAN, J.
The petitioners are engaged in the manufacture and marketing of 'Pan Masala' containing tobacco under the brand name 'Pan Parag', 'Pan Zarda', 'Pan Parag Gutkha' and also 'Pan Masala' which does not contain tobacco. The first respondent passed provisional assessment orders for the months of October, November and December, 2000, levying tax under Entry-II, Part-J of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 ('TNGST Act' in short). The petitioners filed a revision before the Deputy Commissioner (C.T.). The revisional authority confirmed the provisional assessment orders. Aggrieved by that, the petitioners approached the Tamil Nadu Taxation Special Tribunal. The Tribunal dismissed all the original petitions filed by the petitioners. The petitioners also filed original petitions seeking the substantial relief of declaration that the word "or tobacco" in Sl. No.2, Part-J of the First Schedule to the TNGST Act is ultra vires
Sections 14 and
15 of the Central Sales Tax Act, 1956 ('CST Act' in short) and
Article 286 of the Constitution of India and is repugnant to Sl. No.1 (iv) (d) of Part-A to the Third Schedule read with Section 8 of the TNGST Act and the general scheme of levy of additional duty of excise under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ('ADE Act' in short). Aggrieved by the orders passed in the the said petitions, these writ petitions have been preferred.
2. We will briefly narrate the submissions of the writ petitioners which are dealt with elaborately in the written submissions filed by them. 'Gutkha', according to them, is a preparation which, apart from tobacco, contains betel nut, katechu, lime, flavours, permitted spices and saffron and tobacco is its essential character in relation to the dominant object of the user. The percentage of tobacco varies from 7% to 15%. They are aggrieved by the inclusion of the goods as 'Pan Masala' by whatever name called containing betel nuts, that is to say, nut of areca, catachu broken and perfumed and lime or menthol or sandal oils or cardamom or tobacco or any one or more of these ingredients at Sl. No.2 of Part-J of the First Schedule read with Section 3(2) of the TNGST Act.
3. It is admitted by the petitioners that the period of dispute is only from October, 2000 to February, 2001. According to them, if the goods fall within the description of Sl.No.1(iv)(d) of the Third Schedule of the TNGST Act, they are exempt from tax by virtue of
Section 8. Once the goods are exempted by enumeration under the Third Schedule,
Section 8 of the State Act operates, to exempt the goods from levy under the State Act. The subsequent specification of the goods in the First Schedule will have no effect in view of the above exemption. The exemption under
Section 8 of the TNGST Act is not subject to any restriction or condition as far as Sl. No.1(iv)(d) of the Third Schedule is concerned. The definition under Sl. No.1(iv)(d) of the Third Schedule is not restricted to chewing tobacco, but includes preparations containing chewing tobacco and the word 'including' should be construed to enlarge the Entry to comprehend all preparations of chewing tobacco and not restricted to just chewing tobacco.
4. To support their case of inclusive definition, petitioners place reliance on (2008) 15 V.S.T. 256 (SC) [Ponds India Limited vs. Commissioner of Trade Tax, Lucknow] and A.I.R. 1972 S.C. 168 [The Commissioner of Income-Tax, Andhra Pradesh vs. Taj Mahal Hotel, Secunderabad]. It was submitted that the words 'that is to say' in Sl. No.1(iv) have been used so that no other kind of manufactured tobacco can be brought under Sl. No.1(iv), but that does not mean that the said words have any effect on the word 'including' in Sl. No.1(iv)(d) of the Third Schedule. That is, while the words 'that is to say' are restrictive, that cannot take away the effect of the inclusive definition in Sl. No.1(iv)(d).
5. Alternatively, it was submitted on behalf of the petitioners that by virtue of
Article 286(3) of the Constitution the State of Tamil Nadu is subjected to restrictions and conditions as specified by Parliamentary Legislation with regard to inter alia tax on sale or purchase of goods declared to be of special in interstate law and commerce.
Section 14(ix) of the CST Act which deals with such goods of special importance refers, inter alia, to items of manufactured tobacco. Section
15 spells out the restriction. The description of goods in Section 14 was aligned by the Central Act 26 of 1988 with the product description in the CET Act with effect from 16.3.1988. By Finance Act 2 of 1996, Chapter Heading 2404 of the Central Excise Tariff Act was re-cast and substituted, and chewing tobacco preparations earlier covered by sub-heading 2404.41 were substituted as 2404.40. Therefore, according to the petitioners, since their product contain tobacco it falling within the description 'chewing tobacco and preparations containing chewing tobacco', they would be goods of special importance, and the restriction under Section
15 of the CST Act comes into operation. Therefore, the State can neither tax such goods beyond one stage nor over 4% of the sale price during the relevant period. Therefore, according to the petitioners, since
Section 14(ix) of the CST Act covers the goods under sub-heading 2404.41, now re-cast as sub-heading 2404.40, including 'Pan Masala' in Sl. No.2 of Part-J of the First Schedule to the State Act and taxing the goods at 40% is ultra vires
Sections 14 and
15 of the CST Act.
6. According to the petitioners, when the Finance Act, 1996 substituted the entire Heading 24.04 so that the substituted sub-heading reads as 'chewing tobacco and preparations containing chewing tobacco', these words should be read as if written in Sl. No.14(ix) of the CST Act and the enquiry has to be on the words written in
Section 14(ix) of the CST Act as covered in sub-heading 2404.40. It is impermissible to refer to any other Heading such as Heading 21.06 on the ground it is more specific. According to them, when the Parliament by referential legislation assimilated sub-heading 2404.40, it is impermissible to engage oneself in an interpretative exercise of the entire Central Excise Tariff as to whether any other Heading excluded sub-heading 2404.40. According to the petitioners, the issue is covered by (2000) 119 S.T.C. 553 [Kothari Products Ltd. vs. Government of Andhra Pradesh]. According to them, since Gutkha consists of more than one material or substance, applying the General Rules for Interpretation of the Schedule to the CET Act ('Rules for Interpretation' in short) shall be applied, since the mixtures and composite goods are under issue, Heading 21.06 and sub-heading 2404.40 are equally specific. Alternatively, if Rule 3(a) is not attracted, then Rule 3(b) will be attracted as the essential character of Gutkha is that of chewing tobacco. Besides, since Rule 3(c) provides that the Heading which occurs last in numerical order should be preferred, Chapter Heading 2404 is to be preferred, since it occurs after Heading 21.06. The petitioners were originally paying excise duty on these goods as per the Central Excise Tariff Act, 1985 ('CET Act' in short) under Heading 21.06 upto 9.10.2000 and thereafter, they are paying central excise duty and additional excise duty under Sub-Heading 24.40, in accordance with the decision in 119 S.T.C. 553 (supra).
7. Therefore, according to the petitioners, the judgment in 119 S.T.C. 553 (supra) prohibits classification of the goods in question under Chapter 21 of the CET Act and therefore, one has to look only to Chapter 24 and the interpretative rules also point out only to sub-heading 2404.04. The word 'inclusive' would show that chewing tobacco by whatever name they are called, including khara masala, kimam, dokta, zarda, sukha and surti, would be classified under sub-heading 2404.41/2404.40 and therefore, the goods would be covered by the words 'chewing tobacco and preparations containing tobacco'. The words in the Third Schedule of the TNGST Act, by virtue of Section 8, show that the goods in question are exempt from tax and the inclusion thereof in the First Schedule cannot in any manner take away the exemption granted by Section 8. For this proposition, the learned senior counsel relied on (2006) 147 S.T.C. 211 (SC) [Reliance Trading Co. vs. State of Kerala] and (2008) 114 S.T.C. 559 (SC) [Fenoplast vs. State of A.P.]. If this is not accepted, then the goods are any way 'declared goods' as per
Section 14 of the CST Act and there is a ceiling on tax on such declared goods as per
Section 15. For all these reasons, the writ petitioners pray that the impugned order of the Tribunal be quashed and the writ petitions be allowed.
8. In response, the learned Additional Advocate General submitted that the Department and the manufacturers had all along classified the goods under the Heading 21.06. That was the general understanding. It is the judgment in 119 S.T.C. 553 (supra) that catalysed this challenge. During the relevant period, Note-3 under Chapter 21 of the CET Act defined 'Pan Masala' as any preparation containing betel nuts and any one or more or other ingredients mentioned in the said note, which included tobacco and therefore, without any strained interpretative exercise, the product would fall under Chapter 21. The learned Additional Advocate General also referred to the "Rules of Interpretation" and submitted that when the goods answer the precise description in Heading 21.06, one need not go to Chapter 24 and if the goods in question fall in Chapter 21, they are not covered under
Section 14(ix) of the CST Act nor under Entry 1(iv)(d) Part-A of the Third Schedule to the TNGST Act. He specifically referred to Act 14 of 2001 and the conclusion of the dispute with effect from 1.3.2001 which fortified the above construction. After 2001, Note-3 of Chapter 21 was substituted and it explained what is meant by the words 'Pan Masala' and while 'Pan Masala' in Chapter 21 was described as a preparation containing betel nuts and various other ingredients but not tobacco, in Chapter 24, Note-6 was specifically inserted, which defined 'Pan Masala' containing tobacco commonly known as Gutkha as any preparation which contained betel nut and tobacco and any one or other ingredients mentioned under Note-6. Therefore, the learned Additional Advocate General submitted that it is only in the year 2001, with effect from 1.3.2001, that 'Pan Masala' containing tobacco came to be classified under Chapter 24. Significantly, it may be noted that 'Pan Masala' containing tobacco has been assigned separate sub-Heading and not the same sub-headings chewing tobacco and preparations containing chewing tobacco assigned a distinct sub-Heading. Thus, the legislature has consciously not treated 'Pan Masala' containing tobacco termed as Gutkha by the petitioners, as a product of chewing tobacco. Therefore, it was submitted that if this construction is accepted, the other grounds of challenge become redundant.
9. With regard to the specific submission made by the petitioners that 119 S.T.C. 553 (supra) decides the issue, the learned Additional Advocate General submitted that in that case, what was dealt with was Gudaku, a tobacco product falling under sub-heading 2404.11 of the Central Excise Tariff Act as well as the ADE Act and that is not the case of the petitioners herein and that it was a decision rendered on an issue of fact and may not bind us. The learned Additional Advocate General also submitted that the words used in the Andhra Pradesh Government Sales Tax Act were different and all inclusive as compared to the TNGST Act and so, that decision will not cover the issue on hand. He also relied on (2006) 144 S.T.C. 529 (Del) [Shanti Fragrances vs. Union of India] and (2006) 145 S.T.C. 211 (Del) [M.R. Tobacco Pvt. Ltd. vs. Union of India] which referred to the basis of differences existing between the entries in the APGST Act and the Delhi Act. Therefore, according to the learned Additional Advocate General, on the first ground, viz. whether the goods fall under Chapter 21.06 or 2404.41 / 40, the answer has to be the former.
10. Then the learned Additional Advocate General submitted that if this submission is not accepted, then it should be understood under
Article 246 read with Entry 54, List-II, the State's power to levy sales tax on goods of special importance is not taken away. If the State does so, it would only deprive the State of the allocation from the collection of additional excise duty and therefore, the power of the State Legislature to levy such tax is not taken away.
11. As regards the construction of the word 'including' found in sub-heading 2404.41, it was submitted that the word 'including' in the present case is followed by the words 'preparations commonly known as' and therefore, the said word has to be understood and read as 'and' in the conjunctive sense and therefore, the preparations mentioned therein should be treated as exhaustive and it cannot be expanded beyond that.
12. Next, it was submitted that the general presumption is that all goods are taxable and the legislature merely enumerates the goods by description. Section 8 forms an exception to the general rule that all goods are taxable and therefore, if goods that are covered under Entry 1(iv)(d) of the Part-A, Third Schedule of the TNGST Act are introduced as a taxable entry under Entry-2, Part-J of the First Schedule, it would have the effect of withdrawal of the exemption. For this purpose, he relied on (1987) 66 S.T.C. 1 [Commissioner, Sales Tax, U.P. vs. Agra Belting Works]. It was submitted that the subsequent decisions in (2006) 147 S.T.C. 211 (supra) and (2008) 114 S.T.C. 559 (supra) do not refer to Agra Belting Works' case. It was also submitted that the words 'that is to say' found in Entry 114 should be understood to mean that no form of tobacco can be brought under Sl. No.1(iv) and if 'Gutkha' is 'Gudaku' following the judgment in 119 S.T.C. 553 (supra), then it will not be covered by any of the goods enumerated in Entry 1(iv), Part-A of the First Schedule. For all these reasons, the learned Additional Advocate General submitted that the writ petitions should be dismissed.
13. The questions that we have to answer are :-
(a) Whether 'Pan Masala' containing tobacco commonly known as 'Gutkha' would fall under Chapter 21 of the CET Act, 1985 and more particularly under sub-Heading 2106.00 contained thereunder? or
(b) Whether 'Pan Masala' containing tobacco (Gutkha) answers the description contained in Chapter 24 more particularly in sub-heading 2404.41/2404.40 namely chewing tobacco and preparations including khara masala, kimam, dokta, zarda, sukha and surti, chewing tobacco and preparations containing chewing tobacco?
If we hold that 'Pan Masala' containing tobacco commonly known as 'Gutkha' falls under Chapter 21 of the CET Act, then the writ petitions fail. If we hold that 'Pan Masala' containing tobacco commonly known as 'Gutkha' answers the description contained in Chapter 24, more particularly under sub-heading 2404.41 / 1404.40, then we have to answer the following questions :
(a) Whether the State Legislature is competent to levy tax on the sale or purchase of goods declared to be of goods of special importance and subjected to the levy of additional excise duty under the ADE Act, 1957?
(b) Whether the word 'including' found in Entry 1(iv)(d) Part-A, Third Schedule of the TNGST Act and also in sub-heading 2404.41 is to be considered as enlarging the meaning of 'chewing tobacco' and therefore, would have extending force so as to encompass 'Gutkha' as preparation of chewing tobacco?
(c) The State Legislature being competent to levy sales tax on goods of special importance falling under ADE Act, 1957, whether inclusion of 'Pan Masala' containing tobacco as taxable goods under
Section 3(2) read with Entry 2 Part-J of First Schedule of TNGST Act, 1959 would prevail over Section 8 read with Entry 1(iv)(d) Part-A of Third Schedule, assuming such goods fell within the description contained in Entry 1(iv)(d) Part-A of the Third Schedule?
The case of the petitioners is that Gutkha is not commercially considered as 'Pan Masala' and therefore, as per 119 S.T.C. 553 (supra), these goods will not fall under sub-Heading 2106.00 and on the other hand, they would have to be classified under Chapter 24.
14. To understand the questions posed before us, we have to see the historical developments of the relevant entries in the relevant Acts, which have a bearing on the levy of sales tax/excise duty on 'Pan Masala' containing tobacco. The relevant Acts are the TNGST Act, the CST Act, the CET Act and the ADE Act.
Section 14 of the CST Act declares certain goods to be of special importance. And
Section 15 restricts the power of taxation on the said goods. Originally
Section 14(ix) of the CST Act read thus :-
"(ix) tobacco, as defined in Item No.4 of the First Schedule to the Central Excises and Sale Act, 1944 (1 of 1944) [*]"
If we go to Item No.4, 'Tobacco' reads as follows :
"4. Tobacco "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, but does not include any part of a tobacco plant while still attached to the earth.
...
II. Manufactured Tobacco ...
(5) Chewing tobacco, including preparations commonly known as "Khara Masala", "Kimam", "Dokta", "Zarda", "Sukha" and "Surti"."
Central Act 26 of 1988 substituted the words in
Section 14(ix) with the following words with effect from 13.5.1988 :
"14(ix). Unmanufactured tobacco and tobacco refuse covered under sub-Heading No.2401.00, cigars and cheroots of tobacco covered under Heading No.24.02, cigarettes and cigarillos of tobacco covered under the sub-Heading Nos.2403.11 and 2403.21, and other manufactured tobacco covered under sub-heading Nos.2404.41, 2404.50 and 2404.60 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)."
The above amendment was made to
Section 14 of the Central Act in order to align the description of the goods with the description in the CAT Act. This is clear from the Finance Bill, 1988.
15. We will now go to the CET Act. Heading 24.04 of the CET Act, on the date of its incorporation in the Central Act, i.e. on 13.5.1988 read as follows :
'3. In this Chapter, 'Pan Masala' means any preparation containing betel nuts and any one or more of the following ingredients, namely lime, katha (catechu) and tobacco, whether or not containing any other ingredients, such as cardamom, copra and menthol'."
Clause (10) in Chapter XXIV reads as follows :
"(i) for NOTE 2, for the figures and word '24.02, 24.03 and 24.04', 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 relating thereto, the following shall be inserted, namely :-
21.06 2106.00 'Pan Masala' 50%" By Finance (No.2) Act, 1996, there was again a change and the same is reproduced hereunder : "(7) in Chapter 24, after NOTE 4, the following NOTE shall be inserted, namely :- 5. In this Chapter, 'smoking mixtures for pipes and cigarettes' of sub-heading No.2404.10 does not cover 'Gudaku'." ..... "(iii) For Heading No.24.03 and the entries relating thereto, the following shall be substituted, namely :- ========================================= Heading Sub-Heading Description of goods Rate of duty No. No. ---------------------------------------------------------------------------------- (1) (2) (3) (4) ========================================= 24.04 Other manufactured tobacco and manufactured tobacco substitutes; homogenized or 'reconstituted' tobacco, extracts and essences ... ... ... ... ... ... ... ... ... ... 2404.40 Chewing tobacco and 40% preparations containing chewing tobacco ========================================" The relevant extracts from the Finance Act, 2001 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 be substituted, namely :- '3. In this Chapter, 'Pan Masala' means any preparation containing betel-nuts and any one or more of the following ingredients, namely :- (i) lime; and (ii) kattha (catechu), but not tobacco, whether or not containing any other ingredients,such as cardamom, copra and menthol"; (2) in Chapter 24, after NOTE 5, the following NOTE shall be inserted, namely :-
(i) lime; and
(ii) kattha (catechu), Whether or not containing any other ingredients such as cardamom, copra and menthol."
On the above products, a special excise duty of 16% was also levied in the V Schedule, apart from additional duties of excise in Part-II of the VI Schedule as indicated below :
"======================================== Heading Sub-Heading Description of goods Rate of duty No. No. ------------------------------------------------------------------------------- (1) (2) (3) (4) ======================================== In the First Schedule to the Central Excise Tariff Act, (1) In Chapter 24, for sub-Heading No.2404.40 and the entries relating thereto, the following shall be substituted, namely:- " Chewing tobacco and preparations containing chewing tobacco; 'Pan Masala' containing tobacco : 2404.41 Chewing tobacco and preparations 16% containing chewing tobacco 2404.49 'Pan Masala' containing tobacco 16% ========================================" 17. Now, we will go to the TNGST Act.
Section 4 of the Act deals with tax in respect of declared goods :
"4. Tax in respect of declared goods. Notwithstanding anything contained in sub-section (2) to (8) of
section 3 or section 3-A or section 3-B but subject to the provisions of sub-section (1) of
section 3, the tax under this Act shall be payable by a dealer on the sale or purchase inside the State of declared goods at the rate and only at the point specified against each in the Second Schedule on the turnover in such goods in each year. [.....]".
"Section 8. Exemption from tax. Subject to such restrictions and conditions as may be prescribed, a dealer who deals in the goods specified in the Third Schedule shall not be liable to pay any tax under this Act in respect of such goods".
Item-1 in Part-A of the Third Schedule which deals with 'tobacco' reads as follows :
1. (i) Unmanufactured tobacco and tobacco refuse (produced or manufactured in India), as described in column(3, against the heading '24.01' in column (1), of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 50 of 1957) (hereinafter in this Schedule referred to as the said Act);
(ii) Cigars and cheroots of tobacco (produced or manufactured in India) as described in column (3), against the heading '24.04' in column (1), of the First Schedule to the said Act;
(iii) Cigarettes and cigarillos of tobacco(produced or manufactured in India) as described in column (3), against the heading '24.03' in column (1) of the First Schedule to the said Act;
(iv) Other manufactured tobacco (produced or manufactured in India) as described in column (3), against the heading '24.04' in column (1), of the First Schedule to the said Act, that is to say,-
(a) Smoking mixtures of tobacco for pipes and cigarettes; cut-tobacco;
(b) Hookah tobacco;
(c) Biris of tobacco;
(d) Chewing tobacco including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti;
(e) Snuff of tobacco
(f) Preparations containing snuff of tobacco in my proportion."
But Entry-2 in Part-J of the First Schedule to the Act which came into effect from 17.3.1999 pertaining to levy of 40% sales tax on 'Pan Masala' reads as follows :
"2. ENTRY FROM 17.3.1999 'Pan Masala' by whatever name called containing betel nuts, that is to say, nut of areca, catachu broken and perfumed and lime or menthol or sandal oils or cardamom or tobacco or any one or more of these ingredients."
18. Next, we will see the General Rules for the Interpretation of the Schedule to the CET Act. The Rules show that the classification of goods in this Schedule shall be governed by the following principles :
"1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purpose, classification shall be determined according to the terms of the 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 taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.
(b) Any reference in a Heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.
3. When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more Headings, classification shall be effected as follows :
(a) the Heading which provides the most specific description shall be preferred to Headings providing a more general description. However, when two or more Headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those Headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
(b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c) when goods cannot be classified by reference (a) or (b), they shall be classified under the Heading which occurs last in numerical order among those which equally merit consideration."
19. We will now look at the pleadings in this regard. In W.P. No.4001 of 2002, the product in question is described as "the present petition relates only to 'Pan Masala' containing tobacco also known as Gutkha which is sold under the brand name "Tulsi Mix". In W.P. Nos.4604 to 4609 of 2002, it is stated that the petitioners market various products under the brand names 'Pan Parag' being Sadha Parag Masala, Parag Zarda and Pan Parag Gutkha and that besides the above products, the petitioners are also marketing 'Pan Masala' which do not contain tobacco and other allied products. Therefore, we may safely understand from this that the goods in question are 'Pan Masala' which contain tobacco. According to the petitioners in W.P. No.4001 of 2002, "though tobacco is mixed in small quantity in 'Pan Masala' contents, but since it is used by the customers/consumers to satisfy the lust of tobacco, the product loses the identity of 'Pan Masala' and becomes a different commercial commodity and therefore, the only and dominant object of the user is to satisfy the lust intoxication of tobacco. According to the petitioners, since tobacco is the dominant object of the user, the goods should be classified under sub-heading 2404.40 and not under Heading 21.06".
20. We will first take up the first proposition. At the relevant point of time, 'Pan Masala' was described as a preparation containing betel nuts and any one or more of other ingredients such as lime, katha, katechu, cardamom, copra, menthol and tobacco. This is the definition of 'Pan Masala' as per the CET Act. This was the definition of 'Pan Masala' until 1995. The Heading 21.06 covered 'Pan Masala' containing lime, katha, katechu, cardamom, copra, menthol and tobacco or any or more of these ingredients. Chapter 24 dealt with tobacco and manufactured tobacco substitutes and the relevant sub-heading at that time was 2404.41 which deals with chewing tobacco, including preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti.
21. In the year 1995, by Act 22 of 1995, Note-3 was substituted. Thereafter, 'Pan Masala' came to be described as any preparation containing betel nuts and any one or more of the following ingredients, viz., lime, katha, katechu or tobacco, whether or not containing any other ingredients such as cardamom, copra and menthol. Therefore, the primary ingredient of 'Pan Masala' is betel nut, which could be mixed with other ingredients in combination or in isolation and this was the position prevailing as on 1.3.1988. In the year 1995, the definition underwent a change. Betel nuts continued to be one of the essential ingredients along with lime, katha or tobacco in combination or in isolation. It did not matter whether it also contained cardamom, copra and menthol, but one of the three ingredients, viz., lime, katha and tobacco had to be found in the preparation which was known as 'Pan Masala'. By Act 33 of 1996, the description with regard to chapter Heading 24.04 and the sub-Headings thereunder were re-numbered and the description of goods were re-classified. There was no change as far as Chapter 21 was concerned and Heading 21.06 continued to be only 'Pan Masala'. The change came with effect from 1.3.2001, where Note-3 read as follows :
"3. In this Chapter, 'Pan Masala' means any preparation containing betel nuts and any one or more of the following ingredients, namely :-
i) lime; and
ii) kattha (catechu) but not tobacco, whether or not containing any other ingredients, 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, means 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 ingredients, such as cardamom, copra and menthol."
In Chapter 24, for sub-heading 2404.40 and the entries relating thereto, the following was substituted, namely :-
"Chewing tobacco and preparations containing chewing tobacco; 'Pan Masala' containing tobacco.
2404.41 Chewing tobacco and preparations containing chewing tobacco 2404.49 'Pan Masala' containing tobacco 22. Entry No.2 of Part-J in the First Schedule to the Act is similar to sub-heading 2404.49 as changed from 1.3.2001. So now, additional excise duty could be imposed on ''Pan Masala' containing tobacco' under the ADE Act. The Scheme of the ADE Act is explained in 2000 119 S.T.C. 321 [Reliance Trading Company vs. State of Kerala] as follows :
"The Central Government decided to pass an Act to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of a part of the net proceeds thereof among the States in pursuance of the principles of distribution recommended by the Second Finance Commission in its report dated September 30, 1957. This proposal to levy additional duties of excise on certain special goods was a part and parcel of an integrated scheme under which sales tax levied at different rates by the States on certain goods was ultimately substituted by the levy of additional duties Of excise on such goods and the States were compensated by payment of a part of the net proceeds of the said additional levy on such goods. That this clearly was the genesis and object of the 1957 Act also appears from its Objects and Reasons. Some of the items liable to excise duty were picked out from the Schedule to the Central Excise Act. They were listed among the declared goods of
Section 14 of the Central Act and also made liable to additional excise duty under the Additional Excise Act."
The amendments to the Entry relating to Pan Masala containing tobacco appears to have been followed in 119 S.T.C. 553 (supra) which reversed the judgment in (1997) 107 S.T.C. 618 [Kothari Products Limited vs. Government of Andhra Pradesh]. The relevant entries in the Andhra Pradesh General Sales Tax Act read as follows :
================================================= S.No. Description of goods Point of levy Rate of tax Effective from -------------------------------------------------------------------------------------------------- 194 'Pan Masala' including At the point of 10 paise in 8.2.1996 gutka sold in sealed the rupee containers or pouches or any other type of packages ================================================= Sl. No.7 of the Fourth Schedule to the APGST Act pertaining to exempted goods reads as follows : ================================================= Sl. No. Description of goods -------------------------------------------------------------------------------------------------- ... ... ... 7. Tobacco ... ... ...
Explanation The goods mentioned in entries 5, 6 and 7 of this Schedule shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957, but does not include goods where no additional duties of excise are levied under that Schedule."
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23. In (1997) 107 S.T.C. 618 (supra), the Full Bench of the Andhra Pradesh High Court had to consider the question whether the State Legislature could impose sales tax upon 'Pan Masala' and Gutkha and at a rate exceeding 4%. After perusing all the heads and sub-heads in Chapters XXI and XXIV of the CAT Act, the Andhra Pradesh Court concluded that though Gutkha falls within the meaning of 'Pan Masala', since no additional duty of excise is levied on Gutkha, it cannot be held that Gutkha is exempt from tax. Against this, the manufacturer went before the Supreme Court. The Supreme Court reversed this decision in 119 S.T.C. 553 (supra), by a fairly short judgment. This is extracted hereunder :
"1. The appeal is filed against the judgment and order of a Full Bench of the High Court at Andhra Pradesh. The appeal in this Court is restricted to the product gutka (Gudaku).
2. The appellants manufacture and sell gutka under the brand name Pan Parag. They filed a writ petition in the High Court challenging, inter alia, the introduction of Entry 194 in the First Schedule to the A.P. General Sales Tax Act. That entry sought to tax 'Pan Masala' including gutka ....
3. The contention on behalf of the appellants is that it is not open to the State of Andhra Pradesh to tax gutka. Section 8 of the State Sales Tax Act provides that a dealer who deals in the goods specified in the Fourth Schedule thereto shall be exempt from tax thereunder in respect of such goods. Entry 7 of the Fourth Schedule of the State Sales Tax Act refers to tobacco and the explanation in this behalf is that the goods mentioned in Entry 7, shall be goods included in the relevant heads and sub-heads of the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957, but does not include goods where no additional duties of excise are levied under that Schedule.
The said Additional Duties of Excise Act, in Entry 2404, refers to Gudaku under the sub-Heading Other manufactured tobacco. Gudaku which bears a brand name is taxable under Entry 2404.11 at the rate of 5% and Gudaku not bearing a brand name is subject to tax at nil rate under Entry 2404.12. The Schedule to the Central Excise Act also makes the same distinction between Gudaku bearing a brand name and Gudaku not bearing a brand name under the sub-Heading, Other manufactured tobacco and manufactured tobacco substitutes; homogenised or reconstituted tobacco; tobacco extracts and essences.
4. Clearly, therefore, gutka is a tobacco that is covered by an entry in the First Schedule to the said Additional Duties of Excise Act and the branded gutka that the appellants manufacture is liable to tax thereunder. Gutka, therefore, is 'goods' covered by the Explanation to the Fourth Schedule to the State Sales Tax Act and, therefore, covered by the exemption contained in Section 8 thereof. The Schedule to the State Act could, therefore, not have been amended by including gutka as a kind of pan masala in entry 194 of its First Schedule. It must, therefore, be held that the inclusion of gutka in the said entry 194 in the manner in which it is done is bad in law and is struck down. The appellants will be entitled to all consequential benefits.
5. The appeal is allowed and the judgment and order under appeal is set aside.
No order as to costs."
24. The Delhi High Court, in 144 S.T.C. 529 (supra) and 145 S.T.C. 211 (supra), rejected the case of the manufacturers of gutkha who contended that their product is gutkha and is a tax free item by virtue of the inclusion of the said goods in the Third Schedule of the Delhi Sales Tax Act. The Delhi High Court chose to follow Agra Belting Works' case and distinguished 119 S.T.C. 553 (supra) on the ground that it was decided on the facts of that case and the terminology used in the Andhra Pradesh Sales Tax Act was different. The Delhi High Court has also examined the writ petitions filed by guktha manufacturers on the basis of the language of each Act and also on following Agra Belting Works' case.
25. It is not the case of the petitioners herein that their product is covered by Entry 2404.11 or 2404.12. Their specific case is that their product comes under sub-heading 2404.40 and arguments were also advanced only on that understanding. In fact, even in the written submissions, it is specifically stated by them that 'Gutkha' is exempt from tax since it is covered by the sub-heading 2404.40/41 "Chewing Tobacco, including preparations, commonly known as 'Khara Masala', 'Kimam', 'Dokta', 'Zarda', 'Sukha' and 'Surti'" and that the product 'Gutkha' is covered under the sub-heading 2404.41, which later came to be substituted as sub-Heading 2404.40. The entry in the schedule of exempted goods is different in the Andhra Pradesh Act and in the Tamil Nadu Act. Therefore, we are bound to examine this issue on the basis of the facts in question, the stand of the petitioners as well as the TNGST Act and decide whether Pan Masala containing tobacco (Gutkha) is covered by Heading 21.06 or sub-heading 2404.40/41.
26. (1988) 71 S.T.C. 285 [Mahalakshmi Oil Mills vs. State of A.P.] also gives us an insight into how the word "include" should be understood. The Supreme Court, in this case, construed the words, "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, but does not include any part of a tobacco plant while still attached to the earth" and the effect of the word "include". It was contended that in view of the usage of the word "include", tobacco seed would also come under Item No.4. The Supreme Court observed as follows :
"11. We are inclined to accept the contention urged on behalf of the State that the definition under consideration which consists of two separate parts which specify what the expression means and also what it includes is obviously meant to be exhaustive. As Lord Watson observed in Dilworth v. Commissioner of Stamps, (1899) A.C. 99, the joint use of the words mean and include can have this effect. He said, in a passage quoted with approval in earlier decisions of this Court : (AC pp. 105-06) "
Section 2 is, beyond all question, an interpretation clause, and must have been intended by the legislature to be taken into account in construing the expression charitable devise or bequest, as it occurs in
Section 3. It is not said in terms that charitable bequest shall mean one or other of the things which are enumerated, but that it shall include them. The word include is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute ; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word include is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to shew that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to mean and include, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions". (emphasis ours) ...
13. Can then the words tobacco and any form of tobacco in the first part of the definition be given a wider meaning and read as including the seeds also, particularly as it talks of tobacco in any form, cured or uncured, manufactured or unmanufactured? We do not think they can be for several reasons. In the first place, tobacco seeds hardly answer to the description of either the expression manufactured tobacco or the expression unmanufactured tobacco in their ordinary connotation; and the expression cured or uncured cannot also be associated with tobacco seeds. The expression used in the first part of the definition, though every wide, is, therefore, singularly inappropriate to take within its purview tobacco seeds as well. Secondly, the definition occurs in a statute levying excise duty which is concerned not with the parts of a plant grown on the field but with the use to which those parts are put or can be put after severance. The legislature could not but have been aware that if the leaves, stalks and stems of the tobacco plant are used for manufacturing cured tobacco, biris, cigarettes and so on, the seed is also used to produce oil and cake. It takes care to mention the first three items which are used in the manufacture of some forms of tobacco consumption which are also enumerated but refrains from referring to seeds which it would have done had it been intended to include the oil and cake also for purposes of the levy. The categories of unmanufactured tobacco enumerated in the entry in the Schedule include stalks but not seeds. This also indicates that seeds are not intended to be included. In other words, the omission of the word seeds from the second part of the definition casts its shadow on the first part as well. Indeed it rather looks as if the second part of the definition is intended to restrict rather than expand the scope of the first part. Thirdly, it is to be noticed that the first part of definition is somewhat restrictively worded."
29. In A.I.R. 1977 S.C. 90 [S.G.R. Tiles Manufacturers vs. State of Gujarat], the Supreme Court, by construing Entry 22 in Schedule Part-I of the Minimum Wages Act, held that "It seems that the word 'includes' has been used here in the sense of 'means'. This is the only construction that the word can bear in the context. In that sense, it is not a word of extension, but limitation. The Supreme Court also held as follows :
"The use of the word 'includes' in the restrictive sense is not unknown. The observation of Lord Watson in Dilworth v. Commissioner of Stamps (1899) A.C.105-106, which is usually referred to on the use of 'include' as a word of extension, is followed by these lines : "But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to 'mean and include', and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions"."
The expression "that is to say" is descriptive, enumerative, exhaustive and subscribes to a great extent the scope of the entry vide (2005) 3 S.C.C. 30 [Castrol India Ltd. vs. Commissioner of Central Excise]. This is another clue to the meaning of the word 'include', viz., the other, restrictive, limited construction can alone be employed.
30. One other method of understanding the meaning of the words is to follow the meaning attributed by a common man and consistently. In (1996) 102 S.T.C. 566 [City Distributors vs. State of Pondicherry], which related to Parag Zarda, which is chewable tobacco, our High Court has referred to (1990) 76 S.T.C. 319 [Parimala Agencies vs. State of Orissa] which related to assessment under the Orissa Sales Tax Act. And we find the entries at various points of time read as follows :
"Tobacco and all its products other than chewing tobacco, gudakhu, 'Pan Masala', gundi, zarda and snuff."
Therefore, it is clear that all along, chewing tobacco and 'Pan Masala' have been treated differently and not synonymously and that is why Entry 2404 refers to chewing tobacco including preparations commonly known as "Khara Masala", "Kimam", "Dokta", "Zarda", "Sukha" and "Surti". Gudaku is, therefore, dealt with under a separate Heading, so also Snuff. In (1994) 92 S.T.C. 239 [Royal Hatcheries P. Ltd. vs. State of A.P.], the Supreme Court explained the words "that is to say" as restrictive and because of the use of those words in the rule in question in that case, the livestock contemplated by that clause became confined to the domestic animals referred to in the said clause as livestock is not, ordinarily speaking, confined to domestic animals.
31. Several decisions were cited which related to Gudaku and which show that Gudaku is manufactured out of tobacco and is covered by the expression "tobacco". These are not really necessary for this case. In A.I.R. 1981 S.C. 1649 [Hindustan Aluminium Corporation vs. State of U.P.], the Supreme Court held against the assessee and said that aluminium rolled products and cannot be described as "metal" for the purposes of the notifications issued under the U.P. Sales Tax Act and that when aluminium ingots and billets are converted into aluminium rolled products and extrusion products, they go through a process of manufacture which brings into existence of a new marketable commodity and that the expression "included" in the notification in question does not enlarge the meaning of "metal" and must be understood in a conjunctive sense, as a substitute for "and".
32. In King vs. Planters Nut and Chocolate Co. Ltd. [1951 CLR (Ex) 122], the decision was whether salted peanuts and cashew nuts could be considered to be fruit or vegetable within the meaning of the Excise Tax Act and Justice Cameron of the Canadian Exchequer Court emphasised the importance of commercial understanding of the products in the following words :
"My findings must be that as products and as general commodities in the market, neither salted peanuts nor cashews, or nuts of any sort, are generally denominated or known in Canada as either fruits or vegetables. I think it may be assumed, therefore, that if Parliament had intended to include `nuts' among the exempted foodstuffs, the word `nuts' would have appeared in the schedule. That being so, it must follow that salted peanuts and cashew nuts, which as I have said above are considered generally in Canada to be within the category of `nuts,' do not fall within the exemptions provided for fruit and vegetables in Schedule III."
The learned Judge also posed one test, which was, "Would a house holder, when asked to bring home fruit or vegetables for the evening meal, bring home salted peanuts, cashew nuts or any salt? The answer is obviously no". We will adopt the same test to fit the case on hand. If a common man is asked to buy 'Pan Masala', he may ask us "With or without tobacco?". But he will understand what is the product that he has been asked to buy. On the other hand, if he is asked to buy chewing tobacco, he may buy kimam or zarda, which is mainly chewing tobacco, but he will not buy 'Pan Masala'. That is why 'Pan Masala' containing tobacco has all along been specifically described under a different Heading, because that is how it is commonly understood.
33. In (1980) 46 S.T.C. 256 [Delhi Cloth & General Mills Co. Ltd. vs. State of Rajasthan], the Supreme Court held that in determining the meaning or connotation of words and expressions describing an article or commodity, the turnover of which is taxed in a sales tax enactment, if there is one principle fairly well settled, it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer; it is they who are concerned with it, and it is the sense in which they understand it that constitutes the definite index of the legislative intention when the statute was enacted.
34. In 2008 (9) SCALE 277 [Ponds India Ltd. vs. Commissioner, Trade Tax, Lucknow], the question was whether petroleum jelly is a drug or cosmetic. The Supreme Court dealt at length that the effect of inclusive definition vis-a-vis restrictive definition and referred to various decisions of the Supreme Court on this question. We find that when an interpretation clause uses the word "includes", it is prima facie expansive, but when it uses the words "means" and "includes", it is exhaustive. The Supreme Court referred to Mahalakshmi Oil Mills case (supra) and also to the observations in the Principles of Statutory Interpretation by Justice G.P. Singh, where it is observed that the word "include" may in certain contexts be a word of limitation. In this case, the entry in the Third Schedule could have as well been tobacco and all products containing tobacco, instead of which it uses the words "chewing tobacco including preparations commonly known as khara masala, kimam, dokta, zarda and surti. Therefore, the word "includes" here can only be restrictive and used as a word of limitation.
35. Therefore, "Pan Masala containing tobacco" and "chewing tobacco" are not the same. They may now be included under the same Heading, but that does not mean that they are one commodity. "The fact that certain articles are mentioned under the same heading in a statute or the Constitution does not mean that they all constitute one commodity" vide A.I.R. 1964 S.C. 1729 [A. Hajee Abdul Shukoor & Co. vs. State of Madras] and (1998) 1 S.C.C. 437 [Tvl. K.A.K. Anwar & Co. vs. State of Tamil Nadu]. It is clear from the present amendment with effect from 2001 that "chewing tobacco" does not include, and never included "Pan Masala containing tobacco" and but for the inclusion of "Pan Masala containing tobacco" in Chapter 24 and sub-heading 2404.49 with effect from 2001, it would have been goods covered by Heading 21.06.
36. Applying the General Rules for Interpretation, we find that the words 'Pan Masala containing tobacco' provides the most specific description for the goods in question and even if the fact that tobacco is one of the ingredients in the goods in question, since the description of 'Pan Masala' in Heading 21.06 describes the goods most specifically, that has to be preferred. It is, therefore, not necessary to go to Rule 3(b). Even if we do, by its very description, the goods in question is 'Pan Masala' containing tobacco.
37. Even in the Words and Phrases of Central Excise, Customs and Service Tax, 2006, the relevant page of which has been enclosed in the typed set, under chewing tobacco, it says many kinds of chewing tobacco are manufactured, for example Surti, Zarda, Kimam, Dokta and Sukha. 'Pan Masala' is obviously not a kind of chewing tobacco. There is also an entry which says Gudaku, 'Pan Masala', Gundi, Zarda and Snuff, all containing tobacco, but each has its own identity and separate use. Referring to Parimala Agencies case (supra), the definition states that though tobacco is a constituent of Zarda, after manufacture, it is a different class of goods.
38. In the Third Schedule to the TNGST Act, the words used in the CET Act under sub-heading 2404.40 are incorporated. Therefore, what is included in the Third Schedule is chewing tobacco, which is just chewing tobacco per se and not 'Pan Masala' which contains tobacco, and the exemption would include preparations commonly known as khara masala, kimam, dokta, zarda, sukha and surti, which means just those "things which the interpretation clause declares that they shall include". In fact, in (2004) 7 S.C.C. 68 [Godawat 'Pan Masala' Products I.P. Ltd. vs. Union of India], one of the submissions on made on behalf of the appellants before the Supreme Court was attacking the validity of the notifications issued by the Food (Health) Authorities under
Section 7(iv) of the Prevention of Food Adulteration Act, 1954 is that it was strange that States did not ban chewing tobacco or other products which contain almost cent per cent tobacco, but they banned the sale of Gutkha which contains only about 6% tobacco and 'Pan Masala' which contains no tobacco whatsoever. Therefore, if we use Rule 3(a), the essential ingredient in 'Pan Masala' containing tobacco is not tobacco. Tobacco is another ingredient of Pan Masala and therefore, it was rightly taxed under Entry 2106 until the controversy started.
39. If the words "chewing tobacco and preparations containing chewing tobacco" meant or included "Pan Masala containing tobacco" and had always meant or included "Pan Masala containing tobacco", then in Chapter 24, the note would have read 'chewing tobacco and preparations containing chewing tobacco' means, inter alia, 'Pan Masala' containing tobacco commonly known as 'Gutkha'. But this is not the case here. It was separately and specifically included. Therefore, their goods now come under Chapter Heading 2404 because "Pan Masala containing tobacco" is introduced therein for the first time. Prior to 2001, the words used in Chapter 21 are 'Pan Masala' containing lime, kattha, catechu, cardamom, copra, menthol and tobacco or any one or any of these ingredients. And Chapter 24 used the words 'chewing tobacco including preparations commonly known as khara masala, kimam, zarda, surti.
40. After the Finance Act 2001, under the sub-heading 2404.40, which read previously as chewing tobacco and preparations containing chewing tobacco, the words, "chewing tobacco and preparations containing chewing tobacco; 'Pan Masala' containing tobacco" were substituted and under sub-heading 2404.49, the words 'Pan Masala' containing tobacco" were substituted. In the Fifth Schedule which relates to the Second Schedule to the CET Act and in the Sixth Schedule which relates to the First Schedule to the A.D.E. Act, in the Seventh Schedule which relates to the First Schedule to the CET Act under Heading 21.06, sub-heading 2106.00, the description of the goods is 'Pan Masala'. In the Fourth Schedule of the Finance Act, we find that Note-3 of Chapter 21 of the First Schedule to the CET Act was amended by modifying the definition of 'Pan Masala' by using the words "but not tobacco". Therefore, the reference to 'Pan Masala' in Chapter 21 is Pan Masala that did not contain tobacco. And in the same Schedule, we find that an alteration is made in Chapter 24 which defines what 'Pan Masala' containing tobacco commonly known as 'Gutkha' means. The petitioners admit that after the Finance Act 2001, the matter is beyond the pale of controversy since 'Pan Masala' containing tobacco has been included under sub-heading 2404.49. Therefore, their product admittedly is "Pan Masala containing tobacco". If their goods are "Chewing tobacco and preparations containing tobacco", then inclusion of 'Pan Masala' containing tobacco" should have made no difference to their stand. But admittedly it does, and it has, and the petitioners state that the dispute came to an end after "Pan Masala containing tobacco" was included under sub-heading 2404.49. So, without any controversy, the product of the petitioners is "Pan Masala Containing Tobacco".
41. For all the above reasons, the first question is answered against the writ petitioners.
42. In view of our answer to the first question, it is not necessary to deal with the other questions. We find that the Tribunal has arrived at the correct conclusion and we see no reason to interfere with the same. The writ petitions fail and are accordingly dismissed. But, there shall be no order as to costs. Consequently, all the connected miscellaneous petitions are closed.
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