'Can The View Of Five Judges Bench Be Overruled By Four Judges Speaking For A Seven Judge Bench? Supreme Court Reserves Judgement

The Supreme Court on Tuesday reserved its judgment on whether the view of five Judges can be overruled by a view of four Judges speaking for a Bench of 7 Judges; and also whether without amending the exemption provision/notification issued under a specific power, a general notification prescribing the rate of tax under different provisions relating to determination of tax liability under the Act can be deemed to have withdrawn the exemption merely because the exemption provision and charging provision are under the same Act and the same authority.

The five-judge constitution bench of Justices Indira Banerjee, Hemant Gupta, Surya Kant, M. M. Sundresh and Sudhanshu Dhulia was hearing a 2017 reference by the bench of Justices Rohinton Nariman and S. K. Kaul where the 2-judge bench had opined that "there is a dichotomy between two lines of Supreme Court judgments. The first line is contained in Kothari Products Ltd. v. government of AP, and state of Orissa v. Radheshyam Gudakhu Factory; the second line of decisions being Commissioner, Sales Tax UP v. M/s Agra Belting Works, Agra as followed in Sales Tax Officer, Section IX, Kanpur v. Dealing Dairy Products and Another, and state of Bihar and Others v. Krishna Kumar Kabra and Another".

The 2-judge bench had noted that "Whereas the Kothari Products line of judgments had held that an entry under a sales tax statute which only specifies rate cannot be used to eat into an exemption entry, the Agra Belting Works line of judgments states the exact opposite, which is that the charging section, the rate of tax section, and the exemption section all form part of one scheme, and when a notification is issued under a rate of tax section, which is subsequent to a notification exempting certain goods, the intention of the legislature is that such exemption then gets withdrawn and makes the sale of such goods liable to tax". The 2-judge had further observed, "It may be pointed out that in the present case, if numbers are toted up, the Kothari Products line, as followed in Radheshyam Gudakhu Factory and Reliance Trading Company, Kerala v. state of Kerala, will go to a Bench strength, numerically speaking, of eight learned Judges, as against the Agra Belting Works line, which goes up to a numerical strength of six learned Judges. If the dissenting judgment of B.C. Ray, J. (in Agra Belting) is to be added to the Kothari Products line, then we have a numerical strength of 9:6. The question of numerical strength gains poignancy when one judgment is overruled by another, as has been pointed by Beaumont C.J. in Ningappa Ramappa Kurbar, and by Lokur, J. in Supreme Court Advocates-on-Record". Continuing, the 2-judge bench of Justices Nariman and Kaul had canvassed,

"Let us consider a hypothetical example, where a 2 Judge Bench has laid down the law in a particular way. If nine other 2 Judge Benches have followed the first 2 Judge Bench decision, is it open for three learned Judges to overrule all of the 2 Judge Benches i.e. twenty learned Judges? The obvious answer would be yes, because the 3 Judge Bench is really overruling the first 2 Judge Bench decision, which was merely followed by nine other 2 Judge Benches. As against this, however, if a unanimous 5 Judge Bench decision is overruled by a 7 Judge Bench, with four learned Judges speaking for the majority, and three learned Judges speaking for the minority, can it be said that the 5 Judge Bench has been overruled? Under the present practice, it is clear that the view of four learned Judges speaking for the majority in a 7 Judge Bench will prevail over a unanimous 5 Judge Bench decision, because they happen to speak for a 7 Judge Bench. Has the time come to tear the judicial veil and hold that in reality a view of five learned Judges cannot be overruled by a view of four learned Judges speaking for a Bench of 7 learned Judges? This is a question which also needs to be addressed and answered". "Given the head on conflict between the Kothari Products line of judgments and the Agra Belting Works line of judgments, together with the aforesaid conundrum insofar as the doctrine of precedent qua this Court is concerned, we request the Hon'ble Chief Justice of India to constitute an appropriate Bench", the 2-judge bench had said.

On Tuesday, ASG N. Venkataraman told the 5-judge bench, "The issue for consideration which arose in the three High Courts- Delhi, Allahabad and Andhra Pradesh- which came before this court in the referral order was how do you construe the expression gutka or pan masala; whether pan masala and gutka would be tobacco per se or it would not be tobacco in its common sense parlance. What we are now contesting is gutka which is pan masala which contains tobacco- Pan Masala containing tobacco. So when it is a tobacco product, it is governed by Central excise and it is also governed by Additional Excise Duties Act which is a Central act. Whatever is governed by the AED, you cannot impose sales tax on it then. That is a Constitution bench judgment. There are 2 Central enactments-Central excise, and additional excise duties act, 1957 governing tobacco and sugar and textiles. The question all of us contested before various High Courts is that tobacco is governed by exemption, so state has no right to impose, for Gudakhu, state has no right to impose, so pan masala containing tobacco should also follow suit. That was the case. All the High Courts have rejected it. That is what is under reference. Why they have rejected it is because under central excise, tobacco and gudakhu were considered to be one as tobacco and tobacco products or preparations of tobacco. But pan masala containing tobacco or not containing tobacco would be only betelnuts. Till 11 May 2001 pan masala with or without tobacco was classified under chapter 21 as betel nuts. It was not covered under additional duties of excise. Because tobacco falls under chapter 24. So because pan masala with or without tobacco does not fall under 24 but under 21, states started imposing sales tax because it was not confirmed by AED. What we argued was that look here, pan masala containing tobacco should also be construed as tobacco. This was rejected saying that in common parlance, gudakhu could be tobacco because it is the chewing gum of tobacco products but in common parlance pan masala and gutka is not considered to be tobacco even if it contains tobacco as it consists mainly of betel nuts. On 11.5.2001 Parliament under Central excise act divided pan masala with tobacco and without tobacco in two parts. Without tobacco is in 21 and With tobacco is in 24. Through statutory process Pan masala containing tobacco was put under 24 and it was also covered by additional excise duties act. Post 11.5.2001, states could not impose tax on this. All judgments of High Courts are before 11.5.2001. That is why the referral issue was whether without exemption notification amendment, it can be done"

Senior Advocate Dhruv Aggarwal, for the appellants, submitted, "The issues which arise for consideration are whether an exemption provision in a notification issued under taxation statute is general in nature; and whether without amending the exemption provision/notification issued under a specific power, a general notification prescribing the rate of tax under different provisions relating to determination of tax liability under the act can be deemed to have withdrawn the exemption merely because the exemption provision and charging provision are under the same act and the same authority"

"Taxing statutes have to be strictly controlled; there cannot be a deemed provision by which you can take away something", he advanced.

Bench: "If additional excise duties act is applicable to tobacco and tobacco products, sales tax of states will not apply? If that is the case, then where is the question of exemption and exception to exemption. Once the sales tax is not leviable, the question of application of tax by virtue of amendment may not arise"

ASG: "My friend is attempting to claim that even before 11.5.2001, pan masala containing tobacco should be considered as tobacco. All 3 courts have said that in common parlance, it is betel-nut even if it contains tobacco. Classification rules of this court time and again have said 'go by common parlance'. If it is too complicated or technical a subject, then go by technical parlance. The Statute did not call pan masala as tobacco prior to 11.5.2001. Prior to 11.5.2001, you apply the common parlance test, and so Pan masala containing tobacco is not tobacco"

Bench: "Prima facie, there is no conflict between the two lines of judgments. In Agra belting, this court said if the power is with the state government, then the latter notification can override the first notification. That is not the case here. Issue here is whether pan masala is tobacco or not. Whether the common parlance test is to be used, whether technical language is to be used- these are the tests which have to be applied by the regular bench. The only constitutional issue- there is no conflict between the two lines of judgments"

Bench: "Can the state include something which is part of the AED and the Central excise act to say that that can be taxed? If it is tobacco, can the state include tobacco as a taxable item?"

ASG: "Any product which is covered by additional excise duty, states cannot do it. It will be taxed only at the manufacturing stage and not sales but with the understanding that states will not impose tax on sales. It is in lieu of sales tax. After 11.5.2001, there is no ambiguity because it moved away from the betel-nut family and joined the tobacco family. So the AED schedule was also amended to include pan masala containing tobacco. There was a statutory amendment. So after 11.5.2001, states cannot impose"

Bench: "Apparently, there is no difference between the two lines of judgments"

As regards the question in the reference order regarding the doctrine of precedents, Senior Advocate Gopal Sankaranarayanan told the bench, "The referral question is to be given burial. After 75 years, the position cannot be upset. Verdict of the bench is delivered by the majority, article 145(5) of the Constitution says. There was an attempt in the emergency by the 42nd amendment to make amendments to it by inserting 144A which the forty-third amendment repealed. This question should not raise its head again...Article 145(5) says that but nothing in this clause shall be deemed to prevent a judge who does not concur to deliver a dissenting judgment. But that does not mean that the dissenting judgment should add itself to the other dissenting judgments across the board arithmetically. That has been the position for 75 years"

Justice Banerjee: "Yes, we say that the Maratha decision was a 5-judge bench judgment and so we cannot differ (the 2021 judgment where the Supreme Court has held by 3:2 majority that the 102nd Constitution Amendment has abrogated the power of states to identify "Socially and Educationally Backward Classes)"

The bench then reserved its judgment

M/S TRIMURTHI FRAGRANCES (P) LTD. THROUGH ITS DIRECTOR SHRI PRADEEP KUMAR AGRAWAL v. GOVT.OF N.C.T OF DELHI THROUGH ITS PRINCIPAL SECRETARY (FINANCE) & ORS