Karnataka High Court backs levy of Both excise duty & GST on tobacco

The Karnataka High Court has affirmed the constitutionality of the implementation of central excise duty, national calamity contingent duty (NCCD), and goods and services tax (GST) on tobacco and tobacco products at the same time.

A two-judge bench comprised of justices Alok Aradhe and S Vishwajith Shetty essentially confirmed the earlier ruling by a single bench of the court in this regard.

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

V.S. Products, a private company that manufactures tobacco and tobacco products, contested the retention of excise tax and NCCD even after the implementation of GST on July 1, 2017. Tobacco currently has an excise duty of 0.5 percent and an NCCD of 25%. However, a 55% tax break is provided, resulting in an effective tax rate of 11.475 percent. The supply of tobacco goods is subject to a 28% GST, while tobacco leaves are subject to a 5% GST. In addition, a compensatory cess is collected at various rates.

According to the company, the imposition of excise duty on tobacco and tobacco products, in addition to GST, amounts to hostile discrimination and is a violation of Article 14, which guarantees equality before the law to all people. It stated that tobacco and tobacco products are the only goods targeted for hostile and discriminatory treatment, subjecting them to two regimes of indirect taxation.

However, the court ruled that, with the exception of alcoholic beverages for human use, petroleum and petroleum products, stamp duty, tobacco and tobacco products, and opium, all other items are subject only to GST.

Tobacco and tobacco products are subject to GST and excise duty, whereas opium is liable to both GST and value-added tax, according to the court.

The court stated that the imposition of excise taxes on tobacco and tobacco products is a matter of public policy and that it would not interfere with it.