Gutkha Makers not entitled to Section 80I/80IA Deduction

Exchange Rate for imported goods is Rs 74.03 Per Pound Sterling and Rs 51.22 Per Yen-Exchange Rate for export is Rs 72.45 Per Pound Sterling and Rs 49.94 Per Yen-Customs Non-Tariff Notification No.128 Sensex slips further and closes at 8773 100 per cent EOUs allowed to export non-basmati rice-DGFT Notification No.59 Customs duty of 5 per cent imposed on import of Pig Iron, spiegeleisen, semi-finished products, flat products & long products Import of Crude Soyabean Oil subjected to 20 per cent customs duty- no change in import duty on refined soyabean oil-Customs Tariff Notification No.122 Time-limit for filing refund of service tax extended to 6 months-Service Tax Notification No.32 Rahul Bajaj asks Industry to prepare for the worst Tariff Value for import of Brass Scrap is 3525 and for poppy seeds 5206-Customs Non-Tariff Notification No. 127 CBEC clarifies the entire amount of duty paid by the manufacturer, as shown in the invoice would be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced by way of discount or otherwise-Central Excise Circular No.877 Mandavariya (Kishangarh), District Ajmer notified for Unloading of imported goods and loading of export goods-Customs Non-Tariff Notification No.117 SC Ruling-the entitlement of benefit in terms of Section 32AB, Section 80HH and Section 80I of the Income Tax Act- conversion of Jumbo rolls of photographic films into small flats and rolls in the desired sizes amounted to manufacture/production-AIT-2008-413-SC SC Ruling-Whether any "gift" arose in terms of Section 2(xii) of the Gift-tax Act, 1958 on the allotment of rights issue by the appellant company to its shareholders vide Board's Resolution- Whether there was any element of "gift" as defined under Section 2(xii) in the appellant issuing Bonus shares in the ratio of 1:23-AIT-2008-412-SC DEPB benefit allowed on export of cement and steel-DGFT PN 108 exports of cement in all types and forms and primary steel products eligible for export incentives under Focus Market Scheme-DGFT Notification No.58 Import of Marble Tiles-DGFT Notification No.57 Clarification on setting up Duty Free Shops approved by FIPB-Customs Circular No.19 HC Ruling-Income Tax-"reserves" arising out of the acquisition of the business of Tata Cellular Limited could never have the character of "income" in the hands of the petitioners-pre-requisite condition contained in proviso to section 147 to enable the re-assessment to be opened after period of 4 years have elapsed have not been met-AIT-2008-410-HC HC Ruling-Central Excise- valuation of the goods for the purpose of excise duty and whether excise duty was chargeable under Section 4 or Section 4A of the Central Excise Act 1944-while construing rule 3, who are excluded are only the institutional or industrial consumers as explained in Rule 2A and the industrial or institutional consumers in terms of the proviso to rule 2(p) for the purpose of chapter-II are the same-If the person who purchase the prepacked commodity not directly from the manufacturer or packers, they are consumers and the declaration will be of no effect-AIT-2008-408-HC Government considering imposition of import duty on steel Bad News for Consulting Engineers- whether turnkey contract can be vivisected?- The conclusion in Daelim case on the point, prima facie, being not in accordance with law, matter goes to Larger Bench-AIT-2008-405-CESTAT Larger Bench of CESTAT rules Credit is admissible on an input service relating to the business-AIT-2008-407-CESTAT credit of the service tax paid on the outdoor catering (canteen) service is admissible as input service under Rule 2(l) of the Cenvat Credit Rules, 2004-AIT-2008-406-CESTAT The payment for use of "services for MTNL/other companies via the interconnect/port/access/toll by the assessee would not fall within the purview of payments as provided for under section 194J of the Act, so as to be eligible for tax deduction at source-The interconnect charges/port access charges cannot be regarded as fees for technical services-AIT-2008-404-HC Computation of Value under Section 14 for Levy of Export Duty - Customs Circular No. 18 Advance Ruling- Whether the service fee paid by the applicant to Intertek Testing Management Limited UK under Global Management Service Agreement is taxable as "Royalties & Fee for Technical Services" as per the provisions of Article 13 of DTAA between India & UK? Whether the applicant is required to deduct tax at source on the service fee paid to Intertek Testing Management Limited, UK, at the rate of 10% plus applicable surcharge and cess as per the provisions of section 115A(1)(b)(BB) of the Income-tax Act-AIT-2008-401-AAR Larger Bench of SC Ruling-whether the revenue can be precluded from filing an appeal even though in respect of some other years involving identical dispute no appeal is filed -AIT-2008-403-SC SC Ruling-whether transfer of Banking Undertaking gave rise to taxable capital gains under Section 45 of the 1961 Act-it was not possible to compute capital gains and, therefore, the said amount of Rs. 10.20 cr. was not taxable under Section 45 of Income Tax Act-AIT-2008-400-SC Export duty of 8 per cent notified in place of earlier rate of Rs. 200 per tonne on export of iron ore fines-Customs Tariff Notification No.121 Pan Masala Packing Machines (Capacity Determination And Collection of Duty) Second Amendment Rules, 2008-Central Excise Non-Tariff Notification No.45 SC rules Ethylene and propylene manufactured by the assessee and used in its factory in the further manufacture of the same goods would be entitled to the benefit of exemption contained in notification no.217/86-AIT-2008-398-SC New DEPB Rates on export of all products notified–DGFT PN 102 service tax paid under Section 66A is available as 'input credit' under Cenvat Credit Rules, 2004 provided the said services are used as input services by the manufacturer or producer of final products or a provider of output taxable service-Service Tax Trade Notice No.43/2008 Anti-dumping duty imposed on import of cable ties from China & Taiwan-Customs Tariff Notification No.118 Definitive Anti-dumping duty imposed on import of Phenol from Singapore, South Africa & European Union-Customs Tariff Notification No.114 High-tech products entitled to benefits under High-Tech Products Export Promotion Scheme –DGFT PN 101

JUDGMENTS

CENTRAL EXCISE

CUSTOMS

exchange rate

SERVICE TAX

INCOME TAX

VAT

FINANCE ACTS

FINANCE BILLS

EOU STPI

SEZ

DGFT

RBI

NTT

RESOURCES

Email | Print

Gutkha Makers not entitled to Section 80I/80IA Deduction

AIT News Network

NEW DELHI. Special Bench of ITAT vide a significant ruling AIT-2008-113-ITAT has ruled that Gutkha and pan masala containing tobacco are "tobacco preparation" and "chewing tobacco" within the meaning of Item no. 2 of the Eleventh Schedule to the Income Tax Act. Since the assessee is manufacturing or producing Gutkha, which is one of the items covered by the Eleventh Schedule, the assessee is not entitled to claim deduction u/s. 80I/80IA.

Special Bench was constituted to resolve the controversy in bunch of appeals as to whether Gutkha manufactured by the assessee falls under the expression "tobacco preparations" within the meaning of Item no. 2 of the Eleventh Schedule to the I-T Act so as to deprive the assessee of the special relief u/s. 80-I and 80-IA of the I-T Act. The assessee pointed out that a Division Bench of this Tribunal at Allahabad has taken the view in Kothari Products Ltd. v. ACIT, that "Zarda Yukta Pan Masala" (pan masala containing tobacco) is not a "tobacco preparation" under Item no. 2 of the Eleventh Schedule and that the deduction u/s. 32AB and 80-I of the I-T Act could not therefore be denied to the assessee on the ground that the said pan masala was a tobacco preparation within the meaning of Item No.2 in the Eleventh Schedule in the Income-tax Act. In its application seeking the constitution of a Special Bench, the assessee further pointed out that a Division Bench of this Tribunal at Pune has however taken a contrary view in the assessee's own case for the Assessment Years 1994-95 and 1995-96 and has held that Gutkha manufactured by the assessee is a tobacco preparation within the meaning of Item No.2 in the Eleventh Schedule and thus not eligible for deduction u/s. 80-I/80-IA.

Special Bench ruled as under:

The expressions "tobacco" and "tobacco preparations" in Item No.2 of the Eleventh Schedule in the Income-tax Act do not mean one and the same thing. While the expression "tobacco" means processed narcotic leaves and hence "tobacco" would mean a product in which the said leaves arc substantially used in terms of quantity, value or base, the expression "tobacco preparations" means a preparation using tobacco if the pharmacology of nicotine and physiological and psychological effects of nicotine are dominant and the properties of nicotine, a substance derived from tobacco, do not undergo any metamorphosis as a result of addition of other ingredients in the preparation. Tested on this principle, "Gutkha" falls under the expression "tobacco preparations". We therefore hold accordingly.
The test suggested by the learned senior counsel requiring that substantial quantity of "tobacco", either in terms of weight/quantity or value or base in the preparation, must be present m a product/preparation is relevant for judging whether a product falls under the expression "tobacco" or not. The test whether an ingredient is a dominant one in a preparation is relevant for judging whether a preparation fans under the expression "tobacco preparations" or not. The dominant nature of an ingredient in a preparation must be judged in the light of the fact whether the properties of t hat ingredient are retained and dominate the preparation without undergoing any metamorphosis as a result of the addition of other ingredients in the preparation. Tested on this principle also, Gutkha falls under the expression "tobacco preparations" for the reasons explained earlier in this Order.
The words "such as" used in Item No.2 are merely illustrative and not exhaustive. They are indicative of what arc mentioned thereafter. In the contextual setting of Item No.2 of the Eleventh Schedule, the words "such as" are mere indication of various forms of tobacco use, namely, (i) smoking tobacco; and (ii) smokeless tobacco comprising of various forms of "chewing tobacco" and "snuff'. Without prejudice to the aforesaid, the words "chewing tobacco" in Item No.2 would also cover "Gutkha" within its sweep and ordinary meaning.
The fact that Gutkha is not one of the items individually enumerated in Item No.2 of the Eleventh Schedule does not mean that it does not fall under the expressions "tobacco preparations" and "chewing tobacco" used therein. Courts have time and again declined to be bound by labels and have always tried to look through it and reach to the substance. In substance, Gutkha is well covered by the aforesaid expressions and hence absence of its individual denomination in Item No. of the Eleventh Schedule is not material. This is more so as Gutkha was not widely used at the time when the Eleventh Schedule was inserted in the I-T Act.
In popular sense also, Gutkha is used for its tobacco content the taste of which is further enhanced by other ingredients present in Gutkha. Those who are not interested in tobacco would never use Gutkha for the reason that other variants of pan masala without tobacco are available in the market and therefore persons interested in using the other ingredients of Gutkha would use them for the sake of taste of other ingredients and not Gutkha. Besides, the name of the assessee, namely Dhariwal Tobacco Products Private Ltd., indicates that the assessee treats itself as a manufacturer of tobacco products and its Gutkha as a tobacco product. Subsequent alteration in the name would not dilute the nature of the products produced by the assessee. Thus, it is evident that all concerned understand Gutkha as falling under "tobacco preparations" as well as under "chewing tobacco" in Item No.2. In Royal Hatcheries Pvt. Ltd. v. State of AP (supra), the Hon'ble Supreme Court has held that the particular words used by the legislature in the denomination of articles are to be understood according to the common commercial understanding of the terms used. Tested on this principle also, "Gutkha" is perceived, according to the common commercial understanding, as "tobacco preparation" and "chewing tobacco".
Classification of goods under legislations dealing with levy of taxes and duties on them is relevant only for the purpose of those legislations. They arc not relevant for the purpose of interpreting the expressions "tobacco", "tobacco preparations" and "chewing tobacco". The meaning of the aforesaid expressions used in I tem no. 2 has to be seen in their contextual setting in Item no. 2 of the Eleventh Schedule.
The judgment of the Hon'ble Allahabad High Court declining to admit the Reference Application filed by the Department against the order of a Division Bench of this Tribunal at Allahabad in Kothari Products Ltd. and the Hon'ble Supreme Court declining to interfere with the aforesaid judgment of the High Court is an authority for the proposition that the issue whether Gutkha falls under the expression "tobacco preparations" within the meaning of Item No.2 of the Eleventh Schedule is a pure question of fact. Our finding on the facts is that Gutkha manufactured by the assessee falls under the expressions "tobacco preparations" as well as "chewing tobacco" within the meaning of Item No.2 of the Eleventh Schedule.

Related Story: