Facts of the Case

The petitioners, who were manufacturers and traders of tobacco and tobacco products, challenged the constitutional validity of Notification No. 3/2019 dated 06.07.2019, by which Central Excise Duty at the rate of 0.5% was reintroduced on specified tobacco products. They also questioned the continued levy of National Calamity Contingent Duty (NCCD) after the implementation of the GST regime.

The petitioners argued that after the introduction of the Central Goods and Services Tax Act, 2017, tobacco products were already subject to GST and therefore the levy of Central Excise Duty and NCCD was illegal. They further contended that Section 174 of the CGST Act could not preserve the operation of the Central Excise Act in respect of tobacco products and that Section 136 of the Finance Act, 2001 stood impliedly repealed after GST came into force.

The petitions also challenged adjudication orders and sought refund of excise duty and NCCD already collected by the department.

Issues Involved

  1. Whether Central Excise Duty can continue to be levied on tobacco and tobacco products after implementation of GST.
  2. Whether Notification No. 3/2019 dated 06.07.2019 reintroducing excise duty on tobacco products is valid.
  3. Whether Section 174 of the CGST Act, 2017 validly preserves the levy of excise duty on tobacco products.
  4. Whether National Calamity Contingent Duty (NCCD) under Section 136 of the Finance Act, 2001 ceases to exist after GST.
  5. Whether NCCD can be levied even during the period when excise duty was exempted under Notification No. 11/2017.

Petitioners' Arguments

  • GST was introduced to consolidate indirect taxes and therefore tobacco products should not simultaneously suffer GST and Central Excise Duty.
  • Section 174 of the CGST Act could not legally preserve the Central Excise Act for tobacco products.
  • Notification No. 3/2019 imposing 0.5% excise duty was unconstitutional.
  • Since excise duty had been exempted through Notification No. 11/2017 from 01.07.2017, NCCD, being merely a surcharge on excise duty, could not independently survive.
  • Section 136 of the Finance Act, 2001 should be treated as impliedly repealed after GST came into force.
  • The petitioners were entitled to refund of Excise Duty and NCCD collected by the department.

Respondents' Arguments

  • Entry 84 of the Union List specifically authorises Parliament to levy excise duty on tobacco and tobacco products even after the implementation of GST.
  • Section 174 of the CGST Act expressly preserves the operation of the Central Excise Act in respect of goods covered under Entry 84.
  • Notification No. 3/2019 was issued within statutory powers under Section 5A of the Central Excise Act.
  • NCCD is an independent statutory levy under Section 136 of the Finance Act, 2001 and does not automatically disappear merely because excise duty has been exempted.
  • The levy of both GST and Central Excise Duty on tobacco products is constitutionally valid.

Court Order / Findings

The Karnataka High Court dismissed all the writ petitions and upheld the validity of the impugned notification as well as the levy of Central Excise Duty and NCCD.

The Court held that:

  • Entry 84 of the Union List specifically permits levy of Central Excise Duty on tobacco and tobacco products even after GST.
  • Section 174 of the CGST Act expressly saves the operation of the Central Excise Act with respect to goods falling under Entry 84.
  • Tobacco products are constitutionally liable to both GST and Central Excise Duty.
  • The levy of excise duty on tobacco products is a matter of legislative and fiscal policy, and courts ordinarily will not interfere unless constitutional violations are established.
  • NCCD under Section 136 of the Finance Act, 2001 is an independent levy in the nature of an excise duty and is not dependent upon actual collection of basic excise duty.
  • Exemption from basic excise duty does not automatically exempt NCCD.
  • The Court relied upon the Supreme Court judgment in Unicorn Industries vs Union of India (2019) to hold that exemption from one duty does not automatically exempt another statutory levy unless specifically provided.
  • The Court also relied upon the Division Bench judgment in M/s V.S. Products vs Union of India, which upheld the constitutional validity of simultaneous GST and Central Excise Duty on tobacco products.

Accordingly, all writ petitions were dismissed.

Important Clarification

  • Tobacco and tobacco products remain subject to both GST and Central Excise Duty because they are specifically covered under Entry 84 of the Union List.
  • Section 174 of the CGST Act does not repeal the levy of excise duty on tobacco products.
  • NCCD under Section 136 of the Finance Act, 2001 is an independent statutory levy and continues even where basic excise duty has been exempted.
  • Exemption from Central Excise Duty does not automatically exempt NCCD unless a specific exemption is granted.
  • Courts will generally not interfere with taxation policy unless it violates constitutional provisions.

Sections Involved

  • Section 5A of the Central Excise Act, 1944
  • Section 136 of the Finance Act, 2001 (National Calamity Contingent Duty - NCCD)
  • Section 174 of the Central Goods and Services Tax Act, 2017
  • Entry 84 of the Union List (Seventh Schedule) of the Constitution of India
  • Articles 226 and 227 of the Constitution of India
  • Notification No. 11/2017 dated 30.06.2017
  • Notification No. 3/2019 dated 06.07.2019
  • Fourth Schedule to the Central Excise Act, 1944

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785145851_2091compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.