Exceptions to Exemption Provisions in Tax Statutes

M/S Shanti Fragrances v Union of India

The Supreme Court held that there was no conflict between the two Judgments that the reference Judgment said were contradictory. Further, the Bench held that Judgments can only be overturned by a larger Bench and the number of Judges in the majority does not matter when determining the precedential value of a decision.



Petitioner: Shanti Frangrances Pvt Ltd.

Lawyers: Praveen Kumar

Respondents: Union of India

Lawyers: Anil Katiyar; B. Krishna Prasad

Case Details

Case Number: C.A. 8485/2011

Next Hearing: September 6, 2022

Last Updated: October 13, 2022

TAGS: Taxation

Key Issues


Can a taxation entry conflict with an entry for tax exemption in the same sales tax statute?


Can ‘Pan Masala and Gutka’ goods be taxed when the SC has decided that ‘Tobacco’ products are exempt from taxation?

Case Description

Section 7 of the Delhi Sales Tax Act, 1975 (the Act) exempts all goods mentioned in the Third Schedule of the Act from taxation. This includes ‘Tobacco’ products. On January 31st, 2000, the Lieutenant Governor of Delhi issued a notification to introduce ‘Pan Masala and Gutka’ into the First Schedule of the Act. All the items in the First Schedule are taxable under Section 4 of the Act. 

In 2004 a company registered in Delhi called ‘Shanti Fragrances Private Limited’ challenged the Governor’s notification at the Delhi High Court. They argued that the specific entry of ‘Pan Masala and Gutka’ was already included under the general entry for ‘Tobacco’ products in the Third Schedule, as confirmed by the Supreme Court in Kothari Products Ltd. v Govt. of Andhra Pradesh (2000). In light of this SC decision, they argued that the products should not be taxed, like all other tobacco products. 

In response, the Union of India relied upon the SC’s decision in Commissioner, Sales Tax, Uttar Pradesh v Agra Belting Works (1987) to argue that the products should be taxable. If a taxation entry conflicts with an entry for exemption—as the entry for Pan Masala and Gutka would conflict with the exemption for Tobacco—the Court held that this would mean the Legislature intends to withdraw the exemption and make the specific goods taxable. 

The Delhi HC dismissed the challenge in the Union government’s favour on November 5th, 2004. On March 31st, 2005, Shanti Fragrances challenged the Delhi HC’s decision at the Supreme Court. On September 21st, 2017 a Bench comprising Justice R.F. Nariman and S.K. Kaul delivered a Judgment noting that the Judgments in Kothari Products and Agra Belting Works were in direct conflict and were both delivered by 3-Judge Benches. In order to determine which case laid down the correct law, the Bench referred the case to a 5-Judge Constitution Bench. 

A 5-Judge Constitution Bench led by Justice Indira Banerjee and comprising Justices H. Gupta, S. Kant, M.M. Sundresh, and S. Dhulia heard the case on August 30th, 2022. They listed the matter for final arguments starting from September 6th, 2022.

On September 19th, 2022 the Constitution bench delivered the Judgment. It held that there is no conflict between Kothari Products and Agra Belting Works and the case would be decided by a regular 3-Judge Bench instead. Further, they answered the question of whether a dissenting opinion should take away from the precedential value of an SC Judgment when pit against a unanimous Judgment delivered by a Bench of equal strength. The Bench held that Judgments can only be overturned by a larger Bench and the number of Judges in the majority does not matter.