The main legal point established in the judgment is that a clarificatory notification can have retrospective effect, and the consistent policy of the government and recommendations of empowered committees can influence the interpretation of tax exemptions.

1. Common questions of law and that of fact arise for decision-making. Hence, with the consent of the learned counsel for the parties, the petitions are clubbed together, finally heard and are disposed of by this common order.

2. The petitioner in W.P.No.19680-81/2009is a partnership firm carrying on the business of manufacture and sale of beedies in the name and style of M/s. Mangalore Ganesh Beedi Works and a registered dealer under the Karnataka Value Added Tax Act, 2003, (for short ‘KVAT Act’) and also under the Central Sales Tax Act, 1956 (for short ‘CST Act’).

3. Petitioners in all the other petition are registered dealers under the KVAT Act and distributors of beedis manufactured by Mangalore Ganesh beedi works.

4. The core question for decision-making in these petitions is whether in the facts and circumstances, the notification Annexure-“D” is “ex abundanti cautela” the consistent policy of the State, for over few decades exempting un-manufactured tobacco (including tobacco used for the manufacture of beedis) from tax under the KVAT Act?

5. The pleadings in the petitions disclose that traditionally and conventionally manufacture of beedis using tobacco is carried on through cottage industries, manned by persons having no special skill, training or education, more appropriately at the hands of the poorer sections of the society, as a means of livelihood. The sale of beedis is also through petty traders while bulk of the consumption is by persons belonging to the economically and socially weaker sections of the society.

6. The Parliament enacted the Additional Duties of Excise (Goods of Special Importance) Act, 1957, Act No.58/1957 (for short ‘Duties Act’) to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of the part of the net profit thereof among the states, in pursuance of the principles of distribution formulated and the recommendations made by the Finance Commission in its report dated 18.12.1989. whereunder un-manufactured tobacco and tobacco used in manufacture of beedis were declared goods of special importance, in interstate trade and commerce.

7. The State of Karnataka, keeping in mind the manufacture of beedis through cottage industry providing means of sustenance and livelihood for the poor and marginalised, who would otherwise be a burden upon the state exchequer coupled with the fact that the sale of beedis was through petty traders, the consumption of which was by persons belonging to a lower social strata, exempted the sale of beedis from levy of States tax under the Karnataka Sales Tax Act, 1957, ever since its inception and also under the Karnataka Value Added Tax, 2003.

8. The Taxation Laws (Amendment) Act, 2007, Act 16/2007 amended the duties Act by omitting Section 4 and entries under the headings 2401, 2402 and 2403 and subheadings and tariff items in the First Schedule and annulled the SECOND Schedule relating to distribution of additional duties with effect from 26.03.2007. Entry No.50 in the FIRST Schedule to KVAT Act was omitted with effect from 1.4.2007 by Karnataka Act, 602007. Thus, all tobacco products including beedis described in the IRST Schedule to the Duties Act were amendable to tax at the rate of 12.5% in accordance with Clause (b0 of sub-section (1) of Section 4 of the KVAT Act, more so since thee was not corresponding entry in the other schedules fixing the rate of tax for levy of VAT on the sale of beedis.

9. It appears that the Central Government, in co-ordination with the Governments of different states, constituted an “Empowered Committee of Finance Ministers” to prepare a road map to introduce goods and service tax with effect from 1.4.2007. The said committee consisting of State Finance Ministers, in the minutes of the 4th meeting held on 25.04.2007 Annexure “A”, having regard to the notification amending Duties Act, allowed States to tax tobacco and tobacco products without losing 1% devolution, an