Exceptions to Sales Tax Exemptions: Judgment PronouncementExceptions to Exemption Provisions in Tax Statutes
After a single day of hearings, the 5-Judge Constitution Bench led by Justice Indira Banerjee held that a unanimous Judgment did not have more precedential value than a Judgment delivered by a Bench of the same strength where one or more Judges dissented. The Judgment was delivered on September 19th, 2022.
The Bench was originally meant to decide if sales tax can be imposed on goods when the broad heading they are included under is exempt from taxation. The petitioner, Shanti Fragrances, argued that the Delhi Lieutenant Governor incorrectly issued a notification under the Delhi Sales Tax Act, 1975, imposing sales tax on ‘Pan Masala and Gutka’ when Tobacco products were exempt from sales tax under the same Act.
Taxation of Pan Masala and Gutka in Delhi to be Decided by a Regular Bench
In the 2017 Judgment referring the case to a Constitution Bench, Justices R.F. Nariman and S.K. Kaul stated there was a ‘head-on conflict’ between the SC’s decisions in Kothari Products Ltd. v Govt of Andhra Pradesh (2000) and Commissioner, Sales Tax, Uttar Pradesh v Agra Belting Works (1987).
In Kothari Products, the SC held that Pan Masala and Gutka should be exempt from sales tax as they were Tobacco products. In Agra Belting Works, the Court held that if there is a conflict between an exemption and sales tax imposed on a good, it would imply that the Legislature intends to withdraw the exemption provided to that good.
However, the Constitution Bench found no conflict between these Judgments, stating that they dealt with two different situations. The Bench referred the case back to a smaller, ‘regular’ 3-Judge Bench. The smaller Bench will decide if Sales Tax can be imposed on Pan Masala and Gutka under the Delhi Sales Tax Act, 1975.
Bench Strength is the Only Factor to Consider
Shanti Fragrances Ltd. argued that the unanimous decision from Kothari Products should be considered over the decision from Agra Belting Works where Justice B.C. Ray dissented. The Constitution Bench rejected this argument and held that the number of Judges on the Bench is the only consideration to determine the precedential value of a decision. Only a decision of a larger bench can overrule a Judgment delivered by a bench of lesser strength.