In a setback to manufacturers of tobacco and tobacco products, the High Court of Karnataka has upheld that laws that allow simultaneous levy of the Goods and Services Tax (GST), the basic excise duty, and the National Calamity Contingency Duty (NCCD) on these products.
Justice S. Sunil Dutt Yadav delivered the verdict while dismissing a batch of petitions filed by V.S. Products, and several other manufacturers of tobacco and tobacco products.
The petitioners had questioned the constitutional validity of Section 174 of the GST Act, 2017, which allows the continuation of excise duty on tobacco and tobacco products along with the GST, and Section 136 of Finance Act, 2001, through which the NCCD is levied on these products.
Rejecting petitioners’ arguments, the court said Parliament, despite the amendment to the Constitution of India by way of Article 254A for making laws to govern goods and services tax, had retained its power under Article 246 for levying excise duties on certain products, which include tobacco and tobacco products post GST regime.
“It must be noted that Article 246 continues to be the source of power even post introduction of Article 246A. The amendment to Entry 84, List-I [of the Constitution], whereby the field of legislation indicating levy of duty of excise on goods manufactured or produced relating to tobacco and tobacco products, does indicate the conscious intention to preserve the exercise of power under Article 246 even after introduction of Article 246A,” the court observed.
The court also held that, “...the legislature enjoys a wide latitude to decide on the methodology of revenue generation and the courts should not rush and must tread carefully while dealing with legislation based on fiscal policy”.
“In the process of achieving the 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 [avoiding cascading taxes] of GST Act...,” observed the court.
On the levy of the NCCD, which was introduced for the purpose of discouraging consumption, the court said levy of independent duty related to a specific object cannot be described to be a classification without basis.
The court also disagreed with the contention of the petitioners that levy of basic excise duty and the NCCD is violative of the right to equity before law.
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