Karnataka High Court backs simultaneous levy of excise duty, GST on tobacco

Karnataka High Court has upheld the constitutional validity of the imposition of central excise duty, national calamity contingent duty (NCCD) simultaneously with the goods and services tax (GST) on tobacco and tobacco products.

A two-judge bench, comprising justice Alok Aradhe and justice S Vishwajith Shetty, basically upheld the earlier order by a single bench of the court in this regard.

The court ruled that the taxable event for levy of excise duty would be manufacturing of tobacco and the tobacco products and for levy of GST, the taxable event would be supply of tobacco and tobacco products.

V.S. Products, a proprietary firm engaged in the manufacturing of tobacco and tobacco products, challenged the continuation of excise duty and NCCD even after introduction of GST from July one, 2017. Currently, excise duty at 0.5 per cent and NCCD at 25 per cent are imposed on tobacco. However, an abatement of 55 per cent is given which means the effective rate of taxation is 11.475 per cent. GST is levied on supply of tobacco products at 28 per cent and on tobacco leaves at 5 per cent. Besides, compensation cess at different rates is also levied.

The company stated that the levy of excise duty on tobacco and tobacco products along with GST amounts to hostile discrimination and is violative of Article 14 which guarantees equality before the law to all persons. It said tobacco and tobacco products are the only goods which have been singled out for hostile and discriminatory treatment subjecting it to two regimes of indirect taxations.

However, the court said that except for alcoholic liquor for human consumption, petroleum and petroleum products, stamp duty, tobacco and tobacco products and opium, all other goods are liable only to GST.

Tobacco, or tobacco products, are brought to GST and excise duty, whereas opium is brought to GST and is also subject to value added tax, the court ruled.

The court said the levy of excise duty on tobacco and tobacco products is a matter of public policy and that it would not interfere with the same.

Sandeep Sehgal, partner at Tax, AKM Global, a tax and consulting firm, said, the high court has made a distinction with respect to double taxation on tobacco products and upheld the levy of excise duty, NCCD and GST simultaneously.

"In the view of the court, the subject matter of excise is manufacturing and that of GST is supply. Though the concept of ‘manufacturing’ seems to be subsumed in the concept of ‘supply’ , the legislature still retains the prerogative to levy taxes on both activities," he said.