The conflict between different lines of Supreme Court judgments on the interpretation of tax provisions and their impact on the tax liability of specific goods.

JUDGMENT :

R.F. Nariman, J.

This batch of cases concerns Pan Masala containing tobacco and Gutka and their taxability under three State legislations, namely, the Delhi Sales Tax Act, 1975, the U.P. Trade Tax Act, 1948 and the Tamil Nadu General Sales Tax Act, 1959. The central question raised in all these appeals is the same. We shall first take up the Delhi case.

2. Under the Delhi Sales Tax Act, 1975, all sales (of goods) that are effected after the commencement of the Act, are made to suffer tax under Section 3(1) of the Delhi Act, whose marginal note reads "incidence of tax". Section 3 (1) states as under:-

"3. Incidence of Tax

(1) Every dealer whose turnover during the year immediately preceding the commencement of this Act exceeds the taxable quantum and every dealer who at the commencement of this Act, is registered or is liable to pay tax under the Central Sales Tax Act, 1956 (74 of 1956) shall be liable to pay tax under this Act on all sales effected by him on or after such commencement."

The obverse side of incidence of tax is provided by Section 7 of the said Act, which reads as under:-

"7. Tax free goods

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

(2) The Lieutenant Governor may by notification in the Official Gazette, add to, or omit from, or otherwise amend, the Third Schedule either retrospectively or prospectively, and thereupon the Third Schedule shall be deemed to be amended accordingly:

PROVIDED that no such amendment shall be made retrospectively if it would have the effect of prejudicially affecting the interests of any dealer."

3. Under Section 4, the marginal note of which reads "rate of tax", if tax is payable by a dealer under the Act, various rates in respect of taxable turnover are set out depending upon whether the goods are "declared goods" under the Central Sales Tax Act, 1956 or are goods which suffer tax at the rate of either twelve paise or twenty paise in the rupee, depending upon whether they are specified in the First Schedule or Fourth Schedule of the Act. In addition, food or drink served for consumption in a hotel or restaurant with which a cabaret, floor show or similar entertainment is provided, is taxed at the rate of forty paise in the rupee. All cases not covered by the above are then covered by a residuary sub-clause, in which the relevant rate at the given time was eight paise in the rupee. Section 4 of the said Act reads as under:

"4. Rate of tax

(1) The tax payable by a dealer under this Act shall be levied -

(a) in the case of taxable turnover in respect of the goods specified in the First Schedule, at the rate of twelve paise in the rupee;

(b) in the case of taxable turnover in respect of the goods specified in Schedule II, at such rate not exceeding four paise in rupee as the Central Government may, from time to time, by notification in the official Gazette, determine;

(c) in the case of taxable turnover in respect of any food or drink served for consumption in a hotel or restaurant or part thereof, with which a cabaret, floor show or similar entertainment is provided therein, at the rate of forty paise in the rupee;

[(cc) in the case of taxable turnover in respect of the goods specified in the Fourth Schedule, at the rate of twenty paise in the rupee;]

[(ccc) [***]

(d) in the case of taxable turnover of any other goods, at the rate of eight paise in the rupee:

[PROVIDED that the Lieutenant Governor may, by notification in the Official Gazette, add to, or omit from, or otherwise amend, the First Schedule, the Second Schedule or the Fourth Schedule, either retrospectively or prospectively, and there upon the First Schedule or the Second Schedule or, as the case may be, the Fourth Schedule, shall be deemed to be amended accordingly:]

PROVIDED FURTHER that no such amendment shall