SYED SHAH MOHAMMED QUADRI, J.

( 1 ) THE Division Bench which dealt with this case, having regard to the contentions raised before it about the competence of the State Legislature to impose sales tax : (a) upon "pan masala" and "gutka"; and (b) at the rate exceeding 4 per cent, referred the case to a Full Bench. Accordingly the matter has come up before us.

( 2 ) THE petitioner, a company registered under the Indian Companies Act, is engaged in the business of products, "pan masala" and "gutka" under the brand name "pan parag". The distinction between the two appears to be that when tobacco is added to "pan masala" it is called "gutka". Till 1996 there was no impost on the said products in this State. By Andhra Pradesh Ordinance No. 19 of 1996, which later became Andhra Pradesh General Sales Tax (Amendment) Act, 1996 (Act No. 27 of 1996), entry No. 194 was inserted in the First Schedule to the Andhra Pradesh General Sales Tax Act, 1957 (for short "the APGST Act") and they were taxed at the point of first sale in the State at the rate of 10 paise in a rupee with effect from 8/02/1996. By Andhra Pradesh Ordinance No. 3 of 1997 that entry was amended by increasing the rate of tax to 50 paise in a rupee. It is this amendment which gave rise to the present writ petition which is filed by the C and F agent of the petitioner-company.

( 3 ) THE petitioner has given the ingredients of pan masala and the rates at which they are taxed as follows : ------------------------------------------------------------------------ Description of goods Sl. No. in APGST Act Rate of tax in the First Schedule under which tax is levied------------------------------------------------------------------------ (a) Betel nut powder 158 10 paise in a rupee (b) Catechu 184 9 paise in a rupee (c) Lime 10 paise in a rupee (d) Permitted spices 182 9 paise in a rupee (e) Flavours 36 20 paise in a rupee ---- Total tax paid 58 paise in a rupee ---- The total tax paid on the ingredients in pan masala is 58 paise.------------------------------------------------------------------------

( 4 ) WHEN 7 per cent tobacco is mixed in the said ingredients, the mixture is termed as "gutka". It is stated that as tobacco is exempt under the Fourth Schedule to the APGST Act and "gutka" is only chewing tobacco so no sales tax can be levied on "gutka". It is submitted that under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (for short "the Additional Duties of Excise Act") in respect of goods mentioned in the First Schedule, each of the States mentioned in the Second Schedule to that Act, is paid a fixed percentage of net proceeds of the duties and under an arrangement with the Central Government, those States are precluded from imposing sales tax on them. Tobacco is the second item in the said First Schedule and the State of Andhra Pradesh which is one of the States in the said Second Schedule, gets 7. 680 per cent of the net proceeds. Further in the event of the State Government levying and collecting any tax on the purchase of tobacco or other items in the said First Schedule, it will not be entitled to the payment specified in the Second Schedule. The explanation appended to the Fourth Schedule to the APGST Act, as substituted by Act No. 27 of 1996, mentions that entries 5, 6 and 7 of the Schedule shall be goods included in the relevant heads and the sub-heads of the First Schedule to the Additional Duties of Excise Act but does not include goods where no additional duties of excise are levied under that Schedule. Therefore, inclusion of "pan masala" and "gutka" in the First Schedule to the APGST Act and taxing the same at the rate of 50 paise in a rupee, particularly when neighbouring States taxed them only at 10 paise in a rupee, is exorbitant, unconstitutional and arbitrary and infringes fundamental right of the petitioner and is violative of article 19 (1) (g) and article 14 of the Constitution of India.

( 5 ) THE Assistant Secretary to the Government

Click Here to Read the rest of this document