Supreme Court Rules that Pan Masala without Tobacco is not Subject to Excise Duty

The Supreme Court of India has held that pan masala and gutkha fall under Chapter 21 of the Central Excise Tariff Act, 1985, and are liable to state sales tax. The apex court, in a judgment delivered on May 4, 2023, said that the product pan masala, without tobacco, went out of the reach of state sales tax for the first time after the imposition of additional duty of excise in 2001 on pan masala containing tobacco. The Court also held that the amendments to the Central Excise Tariff Act do not affect or change the Central Sales Tax Act, 1956, and therefore, gutkha and pan masala are not covered under sub-heading 2404.40 as far as the CST Act is concerned.

The Court made the observations while disposing of an appeal by several assessees challenging the levy of local sales tax on pan masala and gutkha. The assessees had argued that pan masala and gutkha should be classified under Chapter 24 of the CET Act, which deals with tobacco items. However, the Revenue authorities maintained that pan masala and gutkha were covered under Chapter 21 of the CET Act, which deals with other edible preparations, and that they were liable to state sales tax.

The Court, after examining the relevant provisions of the CET Act, held that pan masala and gutkha fell within Chapter 21, as pan masala, regardless of whether they contained tobacco. The Court also noted that the General Rules of Interpretation of the CET Act provide that the heading which provides the most accurate description has to be followed, and that goods classifiable under Chapter 24, i.e., tobacco items, were more general and did not include pan masala.

The Court further held that gutkha and pan masala were not declared goods under the CST Act and that the subsequent amendments to the CET Act introducing sub-heading 2404.40 did not affect or change the CST Act. Therefore, gutkha and pan masala were not covered under sub-heading 2404.40 as far as the CST Act was concerned, and the rate of local tax could exceed the limit under the CST Act.

The Court also noted that earlier decisions of the Court had held that pan masala and chewing tobacco were different products and were not interchangeable or synonymous expressions. The Court held that till 2001 and the introduction of additional duty of excise, pan masala and gutkha were covered by local or sales tax levies, and were not liable to excise duty.

Date of Decision: May 04, 2023

M/S TRIMURTHI FRAGRANCES (P) LTD.vs  GOVT.OF N.C.T OF DELHI THROUGH ITS PRINCIPAL SECRETARY